Local authorities are in "short-term survival mode" and "beyond the pretence" of planning for the medium term due to UK financial instability, Swansea Council's director of finance has warned. Ben Smith said the council faced an energy price "cliff edge" next April when targeted support from the UK Government was due to end and the council became exposed to soaring cost increases after its fixed price contracts came to an end.
Inflation was also much higher than forecast for when councillors set the 2022-23 budget earlier this year. Mr Smith also said that council staff were being offered a minimum pay rise of £1,925 next year - equating to an average 7-8% increase - as part of national negotiations, which was far more than the 3% the council had budgeted for. It means the council would have to find an extra £12 million unless the pay rise to be agreed was covered in full by central Government.
Mr Smith added that it was by no means assured that the Welsh Government would continue to cover deficits in council tax collections, as it has done since the Covid pandemic.
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He placed particular emphasis on what he described as "national turbulence and machinations" at a UK level, which many economists attribute at least in part to Chancellor Kwasi Kwarteng's mini-budget last Friday.
Addressing cabinet members at a meeting on September 29, Mr Smith said: "I need to place on record a number uncertainties at a national level which will have real-world consequences locally. Things are going to be very, very challenging."
Cabinet agreed the need for all directors to minimise service spending this financial year, and the use of so-called contingency funds held by the council to bolster its coffers.
On the plus side, Mr Smith said Swansea Council had very substantial financial reserves and that he did not anticipate an "unbalanced" end-of-year budget position. "We are okay for this year," he said. But he cautioned that such a large draw on reserves was unsustainable for any council.
Council leader Rob Stewart launched an attack on economic policy decisions made by incoming Prime Minister Liz Truss and the Chancellor. "It was almost unbelievable to hear some of the announcements made by Liz Truss and Kwasi Kwarteng," said Cllr Stewart. "We are not immune to the radical mismanagement of the economy, so we need to take cautious steps until the market recovers."
Energy price hikes for the council of up to 285% next April, he said, could be made worse by the "collapse of the pound" because energy was traded in dollars.
The Swansea Labour leader said homelessness could rise if the UK Government didn't increase benefit payments in line with rising inflation. He added: "I've never seen such mad, bonkers decisions being made by a Government of any sort in this country."
Cabinet member for climate change and transformation, Cllr Andrea Lewis, said council house rent arrears were starting to grow. She added that a Welsh Government expectation that councils should not increase council rents next year, combined with requirements to upgrade and make properties more energy efficient, presented "a very worrying" scenario for the authority, which has 6,500 people on its housing waiting list.
Cllr Robert Francis-Davies, cabinet member for investment, regeneration and tourism, said of the UK's current financial woes, which includes hundreds of mortgage products being withdrawn: "I despair for my grandchildren and how they going to manage." He branded tax breaks for the wealthiest "one per cent", announced in the mini-budget, as "disgraceful".
The Prime Minister has defended her financial strategy, which included lowering the base rate of income tax from 20% to 19%. Speaking on September 29, she said there was plenty of evidence that reducing the tax burden would boost economic growth. She added that currencies were under pressure around the world, and blamed Russia's invasion of Ukraine for the global economic turbulence.
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