Inflation blows £4.8 million hole in Dumfries and Galloway Council's budget

Inflation has blown a £4.8 million hole in the council’s budget.

A new report reveals rising energy prices and the cost of food has had a huge impact on finances.

Members of the finance committee will be asked on Tuesday to allocate extra cash to plug the gap.

A report for members by corporate accountancy manager Steven Whyte says the war in Ukraine has resulted in huge increases in the price of oil and gas with other issues such as transportation difficulties and labour shortages also driving inflation.

He believes that “very high levels of inflation will be experienced for a more prolonged period than had previously been anticipated”, which will “impact significantly” on the council’s finances.

The council’s gas bill is predicted to rise by 162 per cent with electricity up 23.2 per cent and oil up 59 per cent.

There will also be an increased cost of food and fuel, leading to a total estimated increased spend of £4.87 million.

In previous years, the extra cost caused by inflation had been between £500,000 and £750,000.

The budget for the current financial year included £1.5 million to address inflation issues and £350,000 to cover contract price increases.

There is also £480,000 left from last year’s financial year for tackling inflation, with Mr Whyte also suggesting £1 million is drawn from a council pot for unidentified budget pressures.

Councillors will be asked to approve the use of those funds to address the shortfall but that will still leave a £1.540m gap in finances.

Mr Whyte suggests this is drawn from the council’s budget pressures/resilience fund, which has a balance of nearly £5 million.

But he warns this is not a “sustainable source of funding” for increased costs beyond the current year with inflation issues “expected to add significantly to the council’s budgeted costs” in the coming years.

Mr Whyte also proposes a report is prepared looking at ways the council can mitigate future cost increases such as reducing energy consumption and speeding up a shift to renewable sources.

And he also highlights the impact the cost of living crisis is likely to have on the wider community, meaning there will be more people than expected looking for support from services such as social work and the homelessness department.

Finance committee chairman Carolyne Wilson said: “This report focuses on the direct financial impact of increased inflationary pressures on the council itself. However, we know that the increased inflationary rates and rising prices for essential goods are impacting significantly on families, individuals and businesses across Dumfries and Galloway.

“This is being felt disproportionately by the most vulnerable in our communities and this financial year we are directing a combined £3.2 million of additional resources to tackle poverty and support school holiday payments and direct cash payments to the most vulnerable residents in our region.”