Council defends £16.8m 'bailout' request to avoid 15% Stoke-on-Trent tax hike
Council leaders have defended plans to borrow £16.8 million to balance the budget - saying the alternative could be a massive 15 per cent tax hike. Stoke-on-Trent City Council is requesting the £16.8 million of 'exceptional financial support' (EFS) from the government as part of its budget proposals, after receiving £42.2 million last year.
EFS allows cash-strapped councils to borrow money in order to plug holes in their budgets - but the money has to be paid back along with interest. Leaders at the city council plan to use £11 million of EFS to balance the 2025/26 budget - specifically to plug an overspend on children's services - with another £3 million set to be spent on service transformation.
But £2.8 million will be used to pay the interest on the previous year's EFS borrowing - leading opposition councillors to compare the situation to a 'pay day loan'. The council's budget proposals also include a 4.99 per cent council tax rise and £7.5 million of cuts, of which £1.1 million will affect front-line services.
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Councillor Alastair Watson, cabinet member for financial sustainability at the Labour-run authority, told scrutiny committee members that the EFS borrowing would allow the council to avoid a much larger tax rise.
He said: "Stoke-on-Trent currently has the fifth lowest council tax in England. It's worth noting that if we put up council tax to cover the shortfall instead of borrowing, it would have to be in the region of 15 per cent. Borrowing is not something we want to do, but it is something that is part of the picture we find ourselves in."
The strategy and resources scrutiny committee was told that the EFS borrowing would be paid back through the sale of council assets, but that the interest payments would be an additional cost in the meantime.
Councillor Dan Jellyman, scrutiny committee member and leader of the opposition Conservative group, branded the EFS a 'bailout' and questioned the sustainability of this approach.
He said: "We're borrowing money to pay the interest on money that we've borrowed. Is that not just going to be a doom cycle, where we're forever chasing our tail?"
Cllr Watson rejected the term 'bailout' and argued that the council was in its current situation due to years of funding cuts from central government, together with rising demand for services like children's social care.
He said: "EFS is the mechanism put in place for councils who are struggling. The reason they're struggling is that they've been undermined by years of austerity and in the case of Stoke-on-Trent City Council, the difficult situation with children in care. We've started to turn the corner on that, which I'm sure everyone is pleased to see. If the children and families budget had remained the same as it was in 2020/21, and hadn't overspent, we would be £150 million better off now. I'm pleased to see that the government have recognised deprivation in their funding of councils, with the recovery grants. I think that's a small sign of things to come. We wouldn't be in this situation if we hadn't seen a dislocation between funding and need."
The city council's latest EFS has yet to be confirmed by government, but officials say that the £16.8 million request is in line with previous discussions with the Ministry of Housing, Communities and Local Government. The request comes as nearby Cheshire East Council has asked the government for permission to raise council tax by 9.99 per cent without holding a referendum, to help plug its own budget gap.
Nick Edmonds, corporate director of resources, told the committee that the 19 councils that had received EFS included those which had made 'questionable' investment decisions, and those, such as Stoke-on-Trent, which faced 'genuine demand pressures'. He said an informal review by the Chartered Institute of Public Finance and Accountancy had confirmed that Stoke-on-Trent was a well-run authority.
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