Valleys council facing a potential budget gap of £28m next year

Anthony Lewis – Local democracy reporter

A Valleys council is currently facing a potential budget gap of £28m next year.

An update to Rhondda Cynon Taf (RCT) Council cabinet on Monday, September 22, says that, before any increase in council tax the authority is facing a £28.2m hole in its finances based on a 2% increase in funding from Welsh Government for 2026-27.

Over the last few years the council has faced budget gaps of £38m for 2023-24, £36m for 2024-25, and £36m for 2025-26, which are some of the largest deficits RCT has ever faced.

The report says a change in the potential level of the settlement from Welsh Government has a significant impact on the budget gap which is £5.2m per 1%.

The council has forecast budget deficits for the next three years based on various models of Welsh Government funding settlement.

Budget

With a 2% increase in each of the next three years, the budget gaps would be £28.2m for 2026-27, £24.4m for 2027-28, and £22.9m for 2028-29.

But based on a 4% council tax increase these would reduce to £22.4m for 2026-27, £18.5m in 2027-28, and £16.7m in 2028-29.

A cash-flat settlement from Welsh Government, meaning no increase, would result in a £38.6m deficit next year, a £35.09m deficit in 2027-28, and a £33.8m deficit in 2028-29.

The model also assumes specific grant funding such as the social care workforce grant and the eliminate profit/radical reform policy from Welsh Government continue at current-year levels and that fees and charges increased by medium-term inflation only other than where exceptions have already been agreed.

The other assumptions are that the settlement reflects service area pressures from things like statutory requirements, demand-led pressures and demographics, that modelled uplifts are included for pay and non-pay inflation, council-wide requirements are reflected including capital financing, levies, and the council tax reduction scheme, and that the schools budget is modelled to cover forecasted pay and non-pay inflation and other cost pressures.

Reductions

The report to cabinet says that due to their one-off nature the use of reserves “does not represent a sustainable strategy” and more permanent changes and reductions to the base budget must be made to address budget gaps.

It says that to balance the budget using reserves alone would require the use of over £156m of reserves and the council would still have a need to reduce its base budget by around £75m at the end of this period.

The cabinet report says: “The significance of the year-on-year funding shortfalls will mean that the council’s priority and focus will be extremely challenging to continue to deliver at the same levels as in previous years.

“The business-as-usual budget and approach set out by the cabinet secretary,
to allow the next Senedd the opportunity to align budgets with new priorities,
presents local government with a significant challenge.

“Councils have a statutory duty to set a balanced budget for the forthcoming financial year by the March 11  and the holding back of funding for Welsh Government to allocate at a later date is not something which we can take into consideration for this purpose.

“A rollover budget at inflation only (at 2%) does not take into account the fact that current inflation across council expenditure heads and public sector pay
awards continue at much higher levels than this.

“The only way in which councils will be able to deal with such a scenario, for the purpose of setting our own budget, would be to consider all available budget reduction options including higher council tax rises, service reductions, and job losses.

“In this regard we must now, as part of service transformation and budget-saving review programmes, undertake further detail reviews across all our services to urgently identify options which can be considered to close the budget gap being faced.

“Whilst our valued services and jobs will be safeguarded wherever possible it is highly likely that revisions to service delivery arrangements will be required, and associated staffing levels, based on the continued significant
budget gaps which we face unless or until we receive assurances as to likely
more positive funding levels next year and into the medium term.”