Aberdeenshire Council has set up a new strategy to respond to the financial crisis it is facing in the wake of the coronavirus pandemic. 

Councillors have heard that the impact of COVID-19 will have serious consequences on the council’s budget for the next few years at a meeting yesterday.

Councillors agreed to recast the medium-term financial strategy, which takes account of all areas of the council’s spending, including revenue, capital, housing revenue, and reserves, to tackle the shortfall which could reach over £30 million by the end of the financial year, and a potential shortfall of up to £60m by March 2022.

In the first quarter of the financial year, the council is predicting an £8.5m loss in income and increased costs. The losses have been incurred as a direct result of the council’s response to keep people safe during the pandemic, including the creation of childcare hubs for the children of key workers, provision of free school meals, closure of sports and leisure facilities, and waste services.

Alan Wood, head of finance, told councillors that the pressure on council finances could increase to over £30m by the end of the year – a situation which is likely to take more than a year to resolve.

The chief executive and directors have been carefully monitoring the situation, receiving weekly financial reports throughout the pandemic, instructing essential spend only, reviewing contracts and recruitment activity, and reducing spend on travel, energy and recruitment.

In order to address the significant financial challenges facing the council, it was agreed to re-cast the medium-term financial strategy, looking to set a new budget covering the period up to March 2022.

Officers are exploring a range of options to mitigate against the financial impact including relaxing the rules on borrowing around revenue spend and the potential for a debt repayment holiday. It was also recognised that further support may be forthcoming from the Scottish Government, although no assumptions have been made at this time.

Other measures will be considered including use of reserves, treasury management, a review of the Capital Plan and the Housing Revenue Account and a review of all services. Whilst the Health & Social Care Partnership has its own financial strategy, it is important that it is considered as part of the wider strategy given it is a significant part of the council’s budget. 

Jim Savege, chief executive, told the meeting that the council adapted and, in some cases stopped, services in order to respond to the pandemic and the consequences on the council’s financial position was significant. He advised that a new medium term financial strategy was required which would enable the council to meet demands within a new financial context, up to March 2022.

Alan Wood added: “We are starting from a position of strength and financial stability, and that in order to meet financial commitments, the council would review all services and develop restructured business models for the consideration of councillors.”

Councillor Jim Gifford, leader of the council, described the report as “grim reading”. He added: “The term financial crisis is not used lightly but we need to look at every aspect of our financial position and early indications are that the pandemic could cost us up to £60m in the period up to March 2022. This is a stark and blunt assessment of the situation in which we find ourselves, but we can do it and this is a good start for where we must go next.”

Cllr Peter Argyle supported the proposal. He said: “The council’s response to the pandemic has been exemplary and there is now a tremendous burden on us to deal with the financial implications which are extremely serious. I welcome the clear approach set out to tackle the issues and the cross-party co-operation and agreement in working through this together.”

Cllr Gwyneth Petrie added: “This is a new and unfamiliar financial position and we need to find new and unfamiliar ways to tackle the issues, with our focus being on recovery and survival. During this pandemic we have kept services going but this has come at a cost.”

She highlighted that some of the decisions to be taken would be difficult for communities, and stressed the importance of quick and clear communications.

Cllr Alison Evison added: “We are in a crisis situation and we must use all the resources we have at our disposal, whilst remaining responsive to future legislative changes. We should be open to any opportunities to do things differently, and consider emerging local need. We must work with our partners and engage with our communities so everyone feels involved.”

Work to develop the new medium term financial strategy will now begin, with reports being considered by the Recovery Reference Group and through to policy committees for decision.

  • Read all of our articles relating to COVID-19 here.