Orkney Council Goes For 3 Per Cent Rise In Council Tax But Shetland Freezes Tax and Rents

24th February 2022

The Council will spend £91,260,200 on its services, against a Scottish Government budget settlement of £84,715,000 including £15,528,000 of ring-fenced grants.

In order to meet the shortfall, the Council will increase Council tax by 3% and take an additional £11.826m from its reserves.

The Council tax increase is below inflation and will bring the level for Band D properties to £1244.73 - below the Scottish average.

Members had initially been asked to consider a 7.7% increase.

Council Leader, James Stockan, commenting on the decisions made today, said: "Whilst recognising the enormous financial challenges we are facing as an organisation on the back of our poor settlement from Scottish Government, Members were well aware that households across Orkney are facing considerable financial challenges of their own.

"We needed to strike a balance between allowing this organisation to continue providing vital council services, without causing further undue strain on local people.

"We can't simply stand still - to do so would be storing up problems for the future - and we therefore need to accept a reasonable increase, which we believe 3% to be.

"Today's budget sees us now taking more from the reserves than we take in council tax - affordable this year but not sustainable in the long term."

The budget comes on the back of what Council Leader James Stockan has described as the ‘worst budget settlement in Scotland' from the Scottish Government.

Councillor Stockan has previously written to First Minister Nicola Sturgeon to raise his concerns - but that letter has so far gone unanswered.

In the letter, Councillor Stockan highlighted the unfairness of the formula that the Scottish Government uses to establish the distribution of funding to Councils which results in significantly less funding for Orkney.

Councillor Stockan drew a comparison with Shetland which, despite having just 450 more of a population, has received £8 million more in their settlement.

Per head of population - and after adjusting for funding for ferry services that are delivered by Caledonian MacBrayne in the Western Isles - Orkney residents will in fact receive £367 (11.5%) less that Shetland and £692 (21.7%) less than Western Isles for 2022/23.

If Orkney was to be funded in the current financial year, on the same basis as Shetland and Western Isles, the Council would have received £8.2 million and £15.4 million more respectively for the delivery of our services.

With ongoing settlement reductions, the Council has faced significant budget constraints in recent years that have required year on year savings - delivering savings of £15,164,000 over the past 10 years.

Councillor Stockan wrote: "Our community rightly expects the same level of service as the other Islands Councils. It is progressively more difficult with our growing population and, with this happening year on year, for this Council to continue providing essential core services."

A report to a Special Meeting of the Policy and Resources Committee today set out that the provisional revenue grant funding to the Council amounts to £84,715,000, including £15,528,000 of ring-fenced grants - with the Council's budget to be set at £91,260,200

The report highlighted that there are limited options to deal with such a significant spending pressure including:
• An increase in Council Tax.
• An increased draw from reserves, if this can be done in a sustainable manner.
• The cessation of services and cuts in employment.
• An increase in other sources of income.
• A combination of the above.

The budget settlement includes a provisional specific grant allocation of £12,847,000 for provision of ferry services - this is close to £0.5m short of what was requested and still does not include funding for ferry replacement.

In a further sting, this year Orkney Islands Council has also had to increase its contribution to ‘the floor' - a national funding mechanism which ensures a consistent minimum increase or maximum decrease in funding across all councils.

The Scottish Government has also removed the Council Tax freeze, with the Council being free to increase the level of Council Tax for 2022/23.

Some councils generate relatively high levels of income from Council Tax with, at the higher end, 19% of general income raised from Council Tax.

In comparison, Orkney with a lower level of Council Tax and fewer high banded properties currently generates less than 10% of general income from Council Tax.

More
Shetland Islands Council froze council tax and rents using its reserves to cover the lost income. Shetland council is one of the few to have a large surplus in its reserves standing at £446 million.
The freezes, however, mean the council will lose out on £310,000 of additional tax income in 2022/23, and £170,000 of extra housing rent.

Figures showed that freezing both council tax and housing rent would result in a combined cumulative loss of income of more than £3 million by 2027/28.