Optimism remains, although council is £1.4 million behind savings target

The SIC fell £1.4 million behind its savings target in the first quarter of this financial year, but political leader Gary Robinson remains confident the local authority will succeed in making £12.5 million of cuts.

Various hitches, including a delay in pushing through ferry cuts and continued problems within social care, have caused the shortfall. Mr Robinson said that was “mostly down to decisions that members have taken in the chamber”.

It is not the first time the council has witnessed slower progress on cuts in the early part of the year. Mr Robinson said that, while the situation was “unfortunate”, it should be recoverable by the end of 2013/14.

“There’s a combination of things,” he said. “It has been the later than expected implementation of things like the ferry review [cuts to timetables were introduced this summer] and the changes to health and social care, which are certainly big contributors but by no means the only ones.”

Meanwhile, Wednesday’s full council meeting saw members agree to raise the minimum floor of SIC oil reserves from £125 million to £150 million. The value of its invest­ments sat at around £207 million last week.

Last year councillors agreed to halve the minimum floor level of reserves to £125 million. That came after the value of its investments plummeted well below the previous £250 million minimum due to a combination of long-term over­spending and a crash in share prices resulting from the 2008 financial crisis.

Head of finance James Gray said the reserves had grown in value by over 15 per cent last year thanks to a stock market recovery.

Raising the reserves floor by £25 million, he said, would allow the council to spend £1 million a year more than planned “in perpetuity”. Its long term assumption is an annual return of 5.75 per cent.

An “equalisation fund” worth £15 million has been created for use in years when the return on its invest­ments are lower. That should help smooth out the impact of stock market peaks and troughs on the SIC’s funds.

North Isles member Gary Cleaver failed to find a seconder for his amendment to keep the reserves floor at £125 million.

Presenting an updated version of his medium-term financial plan, Mr Gray said the SIC was taking a “measured approach” to the cuts. The books are to be balanced over a three to four-year period, in which time the council will spend over £100 million from reserves: “we’re not turning the tap off”, he said.

Mr Robinson said he believed the plan “should stand us in good stead”. It was “revolutionary” when intro­duced in September 2012, and should help the council learn to live within its means.

“The mantra used to be ‘we are different, we spend money’,” he said. “I don’t think there’s any prizes in blowing the reserves.”

The wider public spending pic­ture is not getting any brighter. While there are some “signs of recovery” in the UK, its overall economy remains two per cent smaller than in 2008. Mr Gray said it was likely to be the end of the decade before central government funding begins to rise again.

Councillor Billy Fox queried whether maintaining a higher level of reserves might risk influencing Scottish government thinking when it comes to handing out money.

Mr Gray said he was confident it would not affect Holyrood officials’ thinking.

Mr Robinson said there was a “perception that central government sees us as being wealthy and not giving us income for projects, but I think that’s almost twofold: in the past there’s also been a presumption by the council against applying for money”.

That is illustrated by the new Anderson High School project. The last council came within days of ploughing ahead with a £60 million-plus school in 2009 with no outside assistance. It is now building one for an estimated £42 million, two-thirds of which will come from Edinburgh.

“The AHS is certainly one of the biggest examples,” Mr Robinson said, “but recently CAB [Citizens Advice Bureau] being able to draw in money from outside Shetland. I think we do need to get better and smarter at that.”

Lerwick South member Amanda Westlake said “congratulations are in order” for the finance department. Upon election last year she was met with some “shocking stats”, but is now delighted the reserves could be stabilised at a higher level.

SIC convener Malcolm Bell said the council was in the middle of correcting “30 years of living in an unsustainable spending bubble”. It has required carrying out “the biggest programme of change ever undertaken by this council”.

“Our current difficulties have taken many, many years to establish and this particular council is not responsible for it,” he said. “How­ever, we are responsible for fixing it. It won’t be easy and we will always try to reach decisions based on evidence. The effects will be felt, but we will work very hard to ensure those most vulnerable in our community feel least impact.”

Looking further ahead, council chief executive Mark Boden said the council had an “unusually large” amount of costly infrastructure, such as piers and ferries, to maintain. “We need to have much better longer term planning for renewal of those assets,” he said.