12.07.24
Cardiff Council has revealed it is facing a predicted budget shortfall in 2025/26 of almost £50m.

The council is now working on a budget plan for next year – which could see some services reduced or stopped completely – to bridge the gap.

The shortfall is caused when the money the council receives from Government, added to the money it expects to raise from charges like council tax, isn’t enough to pay for the 700-plus services the council delivers to residents.

A report to Cardiff Council’s Cabinet, on Thursday, July 18, details the financial pressures the council is currently experiencing due to rising costs and demands for social care, schools and education, buildings, roads and parks, alongside increasing demand for multiple other services.

In March, the Council's Medium-Term Financial Plan highlighted a potential budget gap in 2025-26 of £44.3m. For the longer period of 2025-2029, this gap increases to £142.3m.

But councillors will hear next week that next year's projected deficit has now risen by over £6m to £49.726m and £147.7m over the medium term.

The budget gap is due to a mixture of additional costs and expected reductions in government funding for public services. Major impacts on the budget include increased demand for complex services, particularly in relation to children in looked-after placements, adult domiciliary care costs, and a steep rise in the requirement for schools to provide provision for pupils with additional learning needs.

Other inflationary pressures including higher food costs (school meals), construction materials ,and externally commissioned services such as care home placements and home-to-school transport are also putting tremendous strain on the council’s budget.

Workforce costs are also having an impact, including:

• Pay awards for council staff like teachers
• A rise in the Real Living Wage

Cllr Chris Weaver, the Cabinet Member for Finance, Modernisation and Performance, said: "The Council has a responsibility to deliver a balanced budget for 2025-26 and we are committed to achieving that goal in what continues to be an increasingly, challenging financial landscape.

"We will now work on putting together a Budget, and an updated Corporate Plan, which will prioritise the resources available on key services."

Among the measures the council intends to take to address the budget gap are:

• Maximising income streams where possible, including increasing the fees it charges for some services
• Efficiency savings
• Reducing spending

Cllr Weaver added: "We know we have some difficult decisions and choices to make over the coming months, but we are determined to try to reduce the budget deficit in ways that will have as little impact on the people of Cardiff as possible. This is, however, becoming increasingly difficult.

"This council – like councils across the UK – has seen its budget reduced in real terms requiring hundreds of millions of savings over the past 15 years. So far, we have managed to safeguard most of the services that our residents rely on and care about, but the budget gap we face next year and over the next four years, set against the money we expect to receive, means it’s very likely we will no longer be able to deliver some services. We will of course consult with residents throughout this process to understand what matters the most to them.”

The report will be discussed at the Council’s Policy Review and Performance Scrutiny Committee on Wednesday, July 17 at 5pm. To view the full report, the meeting agenda, and a live webcast of the meeting on the day, follow this link here

The report will then go to Cabinet for approval from 2pm on Thursday, July 18. A live stream of that meeting will be available to view here

If agreed by Cabinet Full Council will consider the report at its meeting on Thursday, July 18, from 4.30pm.

Editor's notes:

Cardiff Council Budget 2025/26 – explainer

There are two key parts to the Council’s Budget – Revenue and Capital.

What is the revenue budget?

It’s the Council’s spending plan for day-to-day services in one year and how we will fund them.  It’s similar to looking at your income and planning for daily essentials like rent, groceries, and utility bills.

What’s a budget gap?

It is when we look at future years and estimate that funding (the grants we receive from Government and revenue from Council Tax) will not cover the costs of delivering services, like education social care, libraries and hubs, street cleansing, street lighting, road maintenance etc.  Currently Cardiff Council delivers around 700 services to residents across the city. 

Why is the Council facing a budget gap?

The Council is projecting a £49.7m budget gap for 2025/26 because the cost of delivering services is expected to increase, and funding is expected to decrease.

Why are costs increasing?

Pressures include:

• Increasing demand for our services - The challenges of recent years, including the COVID-19 pandemic, and cost-of-living crisis have seen more people turning to the Council for support. Demand for our services continues to increase and is often more complex.  This is particularly the case in areas like care for vulnerable children, home care for adults, additional learning needs in education, and homelessness.
• Rising cost of services - Although inflation has stabilised since recent historic highs, we still expect prices to increase in some areas including food, IT, and payments to service providers - including for home-to-school transport and care (both at home and in a residential setting).
• Workforce Costs - We believe public sector employees who deliver vital services across the city should be paid fairly. Pay awards are being negotiated for teachers, carers and other public sector staff which - due to inflation - are likely to see the council's wage costs rise. 

We will need to close the gap through a combination of:

• Savings - The Council is committed to protecting front line services and will seek to maximise back-office efficiencies that don’t affect service delivery. Unfortunately, efficiency savings will not be enough and some changes to services will be needed to balance the books. Over coming months, we will consult on what the people of Cardiff think about potential changes we could make to save money.
• Council Tax - Council Tax funds around 26% of the Council budget, with the remainder coming from Welsh Government. Each 1% increase in Council Tax generates around £1.9 million, therefore closing the gap through Council Tax alone is not realistic. The majority of the gap will need to be addressed through savings.
• Use of Reserves - Using reserves to help balance the budget needs to be approached carefully. Reserves are a one-off funding source so using them to address ongoing pressures simply delays the need to find a more permanent solution. 

 What is the Capital Programme?

The Capital Programme is the Council’s five-year spending plan to significantly improve assets or invest in new ones.  Capital investment should provide long-term benefits - examples include building a new school or large-scale infrastructure work to support city regeneration.

 What will you consider when updating the capital programme?

The current programme covers 2024/25 – 2028/29. We are now planning to roll this forward a year as part of the 2025/26 Budget. To do this we will think about a range of issues including:

• Affordability - this is key because funding is limited - we will need to prioritise.
• Cost and supply chain pressures - including construction price increases and supplier availability.
• External Funding opportunities - the Council is often successful in bidding for grants, and this is key to supporting affordability.

 Why is affordability a challenge?

We can fund capital from several sources including grants, reserves, or capital receipts (which are funds from selling land, buildings, or other assets). If we don’t have a source of money for capital investment that we feel needs to happen, we are allowed to borrow.

Borrowing needs careful consideration because it has a long-term impact on the - already stretched - revenue budget.  This is because from that budget we have to pay interest and set aside money to reduce borrowing.  In a personal context, this is similar to taking out a loan for a car or extension to your home – you must be confident you can afford the repayments alongside your other day to day outgoings. In some circumstances the impact on the revenue budget may be removed if a capital project can generate income or savings to pay for borrowing costs. Examples of this in the current programme include the arena development (to be paid for by income from the property), the development of central square, and rent from new council housing. 

Next steps

The broad principle is that with little to no scope for further borrowing or capital receipts, any new capital expenditure will be minimised unless it can be supported by external partners.  Focus will be on delivering existing projects within budget. In addition:

Capital schemes already planned, and their timing, will be reviewed to identify any cost pressures or opportunities for external funding to pay for them.

We will seek longer term planning frameworks for capital investment with external grant providers. Grants are an important way of supporting affordability, but current bid arrangements make it challenging to plan.