Councillors agree £26 million cutbacks after warning about state of reserves

Councillors have agreed a budget strategy including £26 million in cutbacks over the next two years and backed plans to reinstate the value of the SIC’s oil reserves to £250 million within a decade, amid warnings that if spending is not cut the reserves will have disappeared by 2018.

This morning’s executive committee meeting had been billed as a “key decision day” for council spending, which vice-convener Josie Simpson last week said would “set out how” the SIC can find between £18-20 million in cuts in addition to an estimated £6-8 million in recurring savings identified in the current financial year.

But there was little in the way of discussion about what cuts of this magnitude will actually mean for the future of public services in Shetland. The council is planning to stage a series of meetings later this autumn to explain the situation to the wider community, which may outline the likely effect of the cuts on frontline services such as ferries, buses, schools and social care.

Last week trade union officials criticised talk of the council being near-bankrupt as scaremongering, and called for the pace of cuts to be slowed. But there was a stark message from acting head of finance Hazel Sutherland, whose report included a “worst case” scenario in which the local authority’s oil reserves could vanish within seven or eight years if spending is not brought under control.

She described her plan to get spending to a sustainable level as a “common sense, pragmatic approach” where the council will only spend what it is able to generate from investing the reserves on the world’s money markets. In the long term those returns are estimated at 5.75 per cent a year, which means slashing the annual draw from the reserves from £47 million to just £13 million.

Ms Sutherland secured councillors’ agreement for her proposal, which seeks to make those cuts over a two or three year period. In addition to the planned £26 million cut in revenue spending, the amount spent on capital projects will have to fall. She talked of a period of significant change “while we turn the tanker around”.

Amid ongoing global financial turmoil the value of the council’s investments has fallen this year, which will cause its policy of maintaining the reserves at or above £250 million to be broken by a considerable margin in March 2012. Ms Sutherland forecasts that by following her course of action, the reserves will gradually recover from a low of less than £220 million over the next decade.

Mr Simpson was content that the strategy agreed would see the reserves back above the £250 million floor by the year 2022. “It’s important that at the same time we don’t stifle our economy,” he said. “We have to back our officers. It’s up to us as members to take this forward. I think we’ll get criticised a lot on the way but that’s something we’ll just have to take on the chin.”

Councillors are awaiting the findings of a study into the potential impact the cutbacks could have on the economy, which is likely to be published early next year.

Chief executive Alistair Buchan said that while there had been well-publicised difficulties putting last year’s set of accounts to bed (the books are now finally with Audit Scotland in Edinburgh) he believes the SIC’s approach to budget planning is now “much more rigorous than we’ve had in the past”.

“This challenge has to be approached positively. Unless we act now Shetland will be in an extremely serious position indeed,” he said, adding the emphasis at present was on finding efficiency savings which should have a “limited impact” on frontline public services.

One suggestion floated by councillor Cecil Smith was for the local authority to look at disposing of some of its many assets in order to generate income and cut costs. He questioned whether the council was “renting out for peanuts” a large tract of land at the Ness of Sound, and noted it was costing money to maintain various SIC-owned buildings dotted around Lerwick.

Councillor Caroline Miller felt Ms Sutherland’s budgetary blueprint was “exceptionally well thought out”. She is pleased the council is going to engage with the public to explain the gravity of the situation and gauge community feeling. “If we’re taking £30-odd million out, there are going to be things that have to go,” she warned.

When the public meetings are staged, councillor Alastair Cooper said it was vital that members and officials were in possession of all the facts needed to address any misguided public perceptions about the council. “We have to have the answers for that sort of stuff,” he said.