Edinburgh's coronavirus black hole grows to £56 million

Budget overspent for first time in 13 years

THE Covid black hole in the city council’s finances has grown to more than £56 million amid warnings of “potentially catastrophic” longer-term consequences if adequate funding is not provided by Scottish and UK governments.

As well as the extra costs of coping with the coronavirus pandemic, the council will not receive its annual £6m dividend from Lothian Buses and is expected to lose more than £12m in parking charges.

A report to the council’s policy and sustainability committee on Thursday argues thanks to these and other factors the Capital’s need for cash support is even greater than other Scottish local authorities, which do not have publicly-owned bus services and are not so reliant on parking income.

Last month officials said the council was facing a projected overall funding gap of around £50m due to lost income and increased costs during the Covid-19 lockdown.

Now the figures have been revised and the forecast shortfall has been increased by £6.7m to £56.5m.

The projections are based on a three-month lockdown followed by a gradual return towards pre-pandemic activity levels over the following three months.

The report also reveals the council finished the financial year 2019/20 with an overspend of £5.2m due to the impact of coronavirus - the first time for 13 years the city failed to balance the books.

And it warns the council will need to rethink its budget for the next three years and its investment programme for the next decade, which were passed just in February.

The report says there will have to be rigorous scrutiny of spending, overtime and agency expenditure and a drive to identify additional savings.It adds: “These will require to be undertaken against a backdrop of continuing representations to the Scottish and UK Governments on the potentially-catastrophic longer-term impacts of not adequately funding local government at this time.”

The report notes that the 2020/21 budget was underpinned by planned savings of £34.9m, but says £7.5m of these are now unlikely to be delivered, adding to another £8m of undelivered savings from previous years.

The cost of lost income from the council’s arms-length organisations due to Covid is estimated at £41.3m, which includes the confirmed loss of the Lothian Buses dividend in 2019/20, but also shortfalls incurred by Edinburgh Trams, Edinburgh Leisure - which has had to close its venues - and the Edinburgh International Conference Centre, which has had to cancel its events.

The council will also lose almost £10m from on-street parking, due to suspension of city-wide parking charges, along with £1.6m from residents’ and other parking permits and £2m from bus lane camera enforcement.

Other forecast losses include £3.1m from council tax collection due to people’s inability to pay.

Altogether, the total cost of Covid-19 related expenditure, lost income and unfulfilled savings is expected to add up to £101.5m.

The report says: “Given the magnitude of these combined pressures, radical action continues to be required whilst redoubling efforts to impress upon the UK and Scottish Governments the gravity of the financial impact for local government services both in the immediate and longer term.”

In the meantime, the £101.5m projected shortfall can in part be made up from £17.7m of external funding, £5m which was unallocated in the budget and £11.2m from reserves, together with a further potential £11m from “time-related savings”, reducing the gap to £56.5m.

The projections do not include health and social care, which is the responsibility of the Edinburgh Integration Joint Board, but the report says there is a potential deficit there of £5.2m, some of which is likely to fall to the council.

Tory finance spokesman Graham Hutchison said the council’s financial position was “dire” and the budget set in February was now unrealistic.

“Edinburgh already receives the poorest block grant per head from the Scottish Government for any local authority in Scotland.”

And he said when it came to revising the budget the council should consider saving money by outsourcing services and reducing its office accommodation by allowing people to continue working from home.

“There is this aversion on the part of the administration to looking at third party providers for certain services but we should be exploring every available option.”

He said the council had managed to run with people based at home during the lockdown.

“There are new ways of working. The council doesn’t need as many people to be physically sitting in offices. People can continue to work from home.

And from that there flows an opportunity to reduce the size of the council’s estate.”

Green finance spokesman Gavin Corbett said the report confirmed fears that the budget gap would increase.

“It is now clear that the council will need an entirely new budget which I’d expect to be around September.

“It will require some big decisions. For example, losses from parking charges are predicted to be around £13.5m, far more than for council tax.

“As traffic starts to increase I believe the decision to suspend parking charges needs urgently rethought, both for budget reasons and to prevent the city becoming choked again.

“Overall, however, there is no way the council can bridge the budget gap alone. The report makes clear that Edinburgh faces as bigger shortfall than most councils and the most important reason for that is that we still have a publicly-owned bus company here, which is running a service which almost no income.”

Council leader Adam McVey said: “Throughout this crisis, our number one priority has been to support our communities and our most vulnerable residents. We’ve worked hard to protect our staff as far as possible, to introduce emergency measures to help those in need, and to maintain our key services for the people of Edinburgh. This will not change as we work through the coming weeks and months or as we adapt our services for the longer-term.

“As we consider our next steps carefully it’s vital we do this with a understanding of the unprecedented cost of the pandemic. As part of our planning we’ll be working to narrow our budget gap, but it’s clear we’ll also require additional financial support. A big part of our response to date has been built on positive dialogue with Government, and we’re continuing to work with Ministers on the funding Edinburgh will need going forward.”