Somerset's new unitary authority, which will replace Medip Council that governs Frome, will have to find more than £38m of additional savings in the first year of its existence.

Less than five months remain before Somerset County Council and the four district councils – Mendip, Sedgemoor, Somerset West & Taunton and South Somerset – are formally replaced on the unitary Somerset Council on April 1, 2023.

In the face of inflation, rising demand for services and the long-term impact of the coronavirus pandemic, the new council faces a mountain to climb as it tries to fill a projected £38.2m gap in its first ever budget.

This comes after four of the five current councils predicted an overspend in their final year, potentially reducing the amount of reserves available to the new authority.

Why is the new unitary in such bad shape? 

The stark financial picture of the county's finances was revealed before a meeting of the county council's executive committee in Taunton on Wednesday morning (November 16).

When all five existing councils set their final annual budgets in February, the expected budget gap for the new unitary authority was £28.6m.

This was subsequently revised upwards to £44.5m in July in light of rising inflation, which as of Thursday (November 17) has breached 11 per cent – its highest since 1982.

When all savings proposals are removed, the overall gap between the money the new council will receive (in council tax, grants, commercial income and so forth) and the amount it can expect to spend on services stands at a whopping £74.2m.

Of this, £27.8m will be covered by implementing "savings and income generation proposals" contained within the unitary business case – for instance, by reducing duplication and harmonising the systems on which key services like planning operate.

Further details of these schemes, and how they will be implemented, are expected to come before the executive committee in January 2023.

A further £8m is expected to come from central government to cover the cost of social care reform – leaving a gap of £38.2m which will need to be filled by tax rises and new cuts.

Jason Vaughan, the council's director of finance and governance, stated in his written report: "This is a huge challenge as the new council pulls its services together, and it is clear that the savings from the unitary business case will not be enough to close the gap, meaning that new savings will need to be put in place.

"The focus will remain on driving out inefficiencies, but it is clear from the scale of the financial challenge that cuts to services will be required."

How will this be fixed – are we looking at even more cuts?

In a bid to protect front-line services and avoid exhausting its reserves, the council is exploring different ways to plug this budget gap, including (but not limited to):

• Reducing capital spending by the five existing councils (including those on projects which run into the next financial year)
• Increasing income from fees and charges
• Minimise redundancy payments as part of the unitary transition
• Create a new "asset strategy" to see whether existing assets (including existing council offices) can be sold off for capital receipts
• Review the commercial investments made by the existing councils

Speaking before the meeting on Wednesday (November 16), deputy leader Liz Leyshon said other local authorities mirrored the challenges Somerset was facing across the UK.

Councillor Liz Leyshon

She said: "Council budgets throughout the country are being hit by three key nationwide challenges.

"Inflation is increasing many of our costs, we are struggling to hire the skilled staff we need which means we have to use contractors or external companies to deliver statutory services, and we are seeing a dramatic rise in the complexity of care needed by people presenting to adults' and children's social care.

"Both services are dealing with much more complex cases than we would have expected pre-pandemic, and we've seen a particular rise in the need to support young people's mental health since lockdown.

"While the number of people with the virus may be lower than last year, it looks as if covid-19 will have a lasting effect on public services.

"Covid grants from central government are coming to an end just as the long-term impact of the pandemic is becoming clear."

What about the current financial year?

On top of delivering a balanced budget for the first year of the unitary, Somerset County Council is facing a huge budget gap due to rising demand for children's and adult services.

Of the five local authorities in Somerset, four are currently expected to run an overspend by the end of the current financial year

The total projected overspend for 2022/23 is £23.6m – but £21.2m of this is from the county council, with Mendip balancing its books and the other three districts running deficits of under £1.6m each.

If steps are not taken over the coming months to significantly reduce this amount, the county council will be forced to dip deeply into its reserves to plug the gap before it is officially abolished.

How much will my council tax go up?

Under current legislation, councils are not allowed to increase their council tax by more than 1.99 per cent per year (plus a further one per cent for adult social care) without a referendum.

However, chancellor of the exchequer Jeremy Hunt MP revealed in his autumn statement on Thursday (November 17) that he would allow councils to raise council tax by up to five per cent without a referendum – with the rise comprising a maximum of three per cent for general spending and up to two per cent for adult social care.

The council has not given any initial indication as to how much its council tax is expected to be increased by, with more detailed proposals due to come forward before the budget is set in mid-February 2023.

Jonathan Carr-West, chief executive of the Local Government Information Unit (LGIU), said Mr Hunt's policies were unlikely to prove much help for Somerset and other similar local authorities.

He said: "Today's budget offered limited respite for hard-pressed councils. In a week when two of England's largest local authorities have said they are facing a financial cliff edge – the message from the sector is clear. Well-run councils will fail unless something changes.

"Additional money for social care would be welcome, but the vast majority of what was announced today is derived from delaying reforms and from increasing council tax flexibility. Both these measures simply kick the problem down the road.

"We've been doing that with social care for over a decade now and a regressive tax will hit the poorest the hardest and shift political liability from central to local government.

"Councils across the country are struggling to make ends meet today. The choice for the government is whether it intervenes before or after local authorities go bust. This budget gives little cause for optimism."