District Matters

Welcome to District Matters, a column penned by the Leader of Stratford-on-Avon District Council, Councillor Tony Jefferson. Choose a date from below to read the most recent entries.

Please note: these columns have previously been published in the Stratford Herald newspaper.

Got a question for Councillor Jefferson? You can get in touch via Ask the Leader.

20 January 2023Tony Jefferson

It's 2023 already and as usual the first item on the agenda is the budget. Once again, we have only had a detailed settlement with numbers for one year. Although there are indications of the shape of the settlement in following years it would, I think, be unwise to 'count one's chickens', when there are very realistic estimates that the Government will need to borrow a mere £1.2 trillion over the next five years.

Although we have had a better settlement than we were anticipating, we can only remain within our minimum general fund reserve balance of £3 million in the final year of the Medium-Term Financial Strategy (MTFS) in 2027/28 by using reserves. The General Reserve will be reduced from £10.3 million in 2022/23 to £3.04 million in 2027/28 and we will have drawn on a further £2.8 million of earmarked reserves.

This means, I think, that some very difficult decisions will need to be made by the time of the MTFS commencing in 2024/25. It's not that far away.

Not every local Council in the country is in as relatively strong position as we are. Indeed, there is one Council that has reported debts of £650 million. Quite how they arrived in that position, I find difficult to comprehend. In part, I suspect, it is the result of decisions based on ultra-low interest rates when borrowing was cheap. In part, I suspect, it was the result of a lack of grasping the strategic reality of the cost of that much debt. In part, a far too optimistic a view of the returns that would receive on their investments coupled with a lack of realism in understanding the risks to which they were exposing their residents.

Having to manage that level of debt has very real implications for residents. Not least that the council will now be run by government appointed commissioners tasked with restoring financial soundness. What this means for residents is that the following actions will inevitably have to be taken:

  • Cuts in services to reduce costs
  • Sale of assets to reduce the debts. As these will be, in effect, 'fire sales' they will probably need to be sold at a discount
  • Finally council tax will need to be increased far above the normal constraints that apply. This could be many 10's of percent.

The illustration to which I have referred is not the only Council in financial difficulties. There appears to be a steadily increasing number. In my view, this demonstrates very clearly the need for a high level of competence in councillors, coupled with a capability to undertake very careful risk assessments and to understand their Council's strategic position. There is too much short-term thinking and 'kicking the can down the road'. There also needs to be a clear understanding of the reality that resources are limited and massive borrowing to avoid taking difficult decisions usually results in a worse outcome.

It is stating the blindingly obvious that our residents will face a challenging time. Not only is the cost-of-living crisis biting everyone but, because it is food and energy prices that are increasing the most, it will bear most heavily on the poorer members of our society. As Stratford District has a population skewed to the elderly with over 25% of our population 65 or older, this cohort will also be heavily impacted by the crisis in the health care and social care systems. I fear that there will be no quick, easy or low-cost solutions. Given the scale of these issues, there is in reality not much a District Council can do to solve these problems.

As if this were not enough, higher interest rates have made buying a house unattainable for an increasing number of people. Those who have taken out mortgages in the last few years are likely to find finances stretched as they re-mortgage. Housebuilders are already seeing a marked reduction in sales which, given the level of housebuilding locally, will have a negative impact on both our local and the UK's economy.

The hospitality and tourism industry has been hard hit over the past two years. At the last WMCA Economic Impact Group I attended, it was reported that in Birmingham about 50% of hospitality businesses would struggle to pay their bills in the New Year.

In short, as a District Council, we face a list of massive and interconnected challenges. Indeed, Government at every level faces massive challenges without sufficient money, resources or arguably the capability to deal with them all. It really is going to be a time when competence, clear strategic thinking and a willingness to take tough decisions, including saying 'no' far more often, will be the order of the day both locally and nationally. This is not a time for simplistic, quick fix solutions or undeliverable promises peddled by the naïve and the gullible.

I don't think many people are prepared for this reality.

The Chinese curse 'may you live in interesting times' is applicable. We certainly do.

16 December 2022

It is the end of yet another turbulent and volatile year. No sooner had we emerged from Covid than Putin invaded Ukraine. This immediately caused spikes in the cost of energy, food and raw materials.

This was exacerbated later in the year when he cut gas supplies to Germany and, purely coincidentally, a gas pipeline in the Baltic Sea blew up. All of this turbocharged inflation which was already rising and has led directly to what we now refer to as the ‘cost of living crisis'.

So, we have had three years of global crises in a row; 2020 and 2021 it was Covid and 2022 the fallout from Putin's invasion of Ukraine. As if these were not enough, global supply chains have been massively disrupted by China's approach to tackling the Covid pandemic. This exacerbated the fall in global economic activity and increased inflation further.

I am amazed how many people seem to believe that the Government, indeed any government, can make all these pressures go away. What the Government has done is borrow massive sums of money first; to cushion the impact of Covid on households and businesses and second; to cushion the impact of high energy prices on households and businesses.

What was cruelly exposed by Liz Truss' attempt to deliver tax cuts and spending increases on subsidising energy costs was a substantial increase in the cost of government debt. In other words, interest rates increased rapidly and substantially. This became known as the 'moron premium', for fairly obvious reasons.

However, what is very apparent now is that there are real limits to how much the Government, indeed any government, can borrow at realistic cost. This means that if anyone expects a change of government to lead to a cornucopia of spending, I suggest that they think again.

The reason I say this is that, as reported in the Financial Times on Thursday 8 December, the Debt Management Office, which handles debt sales on behalf of the Treasury, will need to sell an average of £240 billion of gilts for each of the next five financial years. There is now almost no room for manoeuvre.

You may think that this is all very remote from us. As a Council, however, much of our funding comes from the Government. If this is reduced or constrained, services will probably need to be cut. The other challenge to us is inflation. If it turns out to be 2% higher than our assumptions, over five years this will cost the Council about another £1.5 million. We all have to understand the context in which we operate.

Of course, what would make everything more manageable is economic growth. A clear strategy for growth is the one policy area that the Government has failed to address properly, except for Liz Truss' spectacular car crash. Whilst we can do little about the national picture, locally across Stratford District we are doing everything we can to encourage growth. Our latest initiative, working together with the University of Warwick and the CWLEP Growth Hub, is to bring together a nucleus of up to 50 leading and innovative businesses from across South Warwickshire to discuss the challenges and opportunities for economic growth. We have worked hard to identify potential companies and, having personally signed all the invitations, I am impressed by the sheer range and variety of innovative and high tech companies we have in the District.

These are the kind of companies that will help to generate our economic growth over the next few decades. Coupled with the development of the innovation campus of the University of Warwick in Wellesbourne, they will give our District a strong foundation for continuing prosperity so badly needed in these challenging times.

Our intention is to build on this first event. The 'Driving Innovation and Growth' summit to be held on 17 February 2023 at the Wellesbourne campus, with a series of further events addressing the main issues and challenges in initiating and sustaining growth.

For us as the Council, this is an exciting initiative. It clearly builds on the links and working relationships we have built with key partners over the past few years. It demonstrates our willingness to be proactive in the interest of everyone in the District.

Finally, as it is the season of good cheer, I have some good news to report. Following our submission of our Investment Plan to the Department for Levelling Up, we have had confirmation that, based on our vision and initiative, the Council will be awarded £456k for 2022/23, and indicative allocations of almost £900k for 2023/24 and £2.3 million for 2024/25. The news was not delivered by a stout gentleman with a white beard wearing a red suit, honest!

I wish everyone a very Merry Christmas and a Happy New Year.

18 November 2022

Last month's column set out the economic backdrop which informs our thinking about budgeting. The outlook was not good. Not much has changed.

Against this backdrop we have started our budget process. We have a first draft Medium Term Financial Strategy which basically captures the as is' position with no changes. Using this as a base, we have initiated a 'star chamber' process where we go through every area in considerable depth. We review the budgets for each Head of Service area together with the relevant portfolio holder. The people acting as inquisitors are myself as Leader, The Deputy Leader, the Finance Portfolio holder together with the Chief Executive and Deputy Chief Executive. Each meeting can last up to three hours, so they are pretty thorough.

The impact of Covid means that this is the first time in three years we have followed this process. It has been extremely worthwhile to stand back and look at how we spend the money and review where our priorities need to be.

What is absolutely clear is that there is insufficient money to continue as we are. Substantial savings will have to be made. When we have completed the first round of the 'star chamber' process, we will then review the Medium-Term Financial Strategy to include the changes identified through the 'star chamber' process. At the moment it is unlikely that the savings identified to date will be sufficient, even if we make substantial use of reserves. Obviously, reserves can only be used once so their use does not resolve the underlying issues.

As I write we are awaiting the Autumn Statement on the 17th of this month with some trepidation. We will not, however, receive details of the funding settlement from Central Government until mid-December at the earliest. Only then shall we have a clear sense of scale and direction. Frankly, we know the sense of direction; what we need is an indication of how bad it will be.

What this all demonstrates is how much time, effort and serious judgement has to be devoted to the Council's finances.

There has just been some latest data published on tourism which may provide a surprise to those people who believe 'people will always come to Stratford'.

In 2019 the value of tourism to Stratford-on-Avon District was £476 million; in 2021 this had dropped to £320 million. This is a decline of 32%. The volume of tourists declined from 6.5 million in 2019 to 5.2 million in 2021. This was decline of 20%. The difference between the decline in value and the decline in volume is largely explained by the drop in international tourists. International spend in 2019 was £61.8 million and this had declined to £9.9 million in 2021. This is a decline of 78%. In 2019 tourism supported 8,973 jobs across the District; by 2021 this had declined to 6,621.

I make no apologies for going into this level of detail because tourism is the second largest industry in the District. It is a Cinderella industry. Despite its size and positive impact on the UK and the local economy, far too few people treat it with the seriousness it deserves. This includes some of our residents. For some time, there has been a review in progress into the funding of destination management organisations, in our case Shakespeare's England. Conclusions and money are currently lacking which I think demonstrates one of the key failings of the UK. There is an unwillingness to invest in economic development and support organisations that can facilitate economic growth. We manage to miss so many opportunities to boost economic growth and then wonder why there is no money.

Together with Warwick District Council, the Council continues to fund Shakespeare's England because we understand how significant the tourist industry is to the area.

There has been one very bright spot during the past month. I attended the Stratford Herald Business and Tourism Awards dinner. I even had to give a speech. What the dinner showcased was that many local businesses and people are doing a superb job of adapting, thriving and growing. We need that from the private sector or, unfortunately, we will all end up poorer. There are times when I think some people do not appreciate this. They seem assume that the State will always bail everyone out. This for the birds. We can't afford to do that.

21 October 2022

It is amazing how much can happen in a month. If anyone thought we did not live in unpredictable, unstable and volatile times, the last month will have been a ‘wake up call'.

The UK economy is in far from good shape. According to The Economist Intelligence Unit growth this year will be 3.3%, which includes a bounce back from Covid and may prove optimistic. The Government's budget balance is forecast to be negative 6.8% of GDP and the current account balance negative 5.2% of GDP. Interest rate on Government borrowing is now around 4.5% and is likely to rise further.

This picture has some very real impacts and consequences. The scale of the Government's borrowing needs (the negative budget balance) is causing concern amongst investors. Until this year, borrowing was very cheap and very easy. That has now changed dramatically and the increase in interest rates will push the deficit even higher. It has been easy to fund Government borrowing by debt. That is now over. So, the Government is now very constrained in what it can spend. Tax cutting is now likely to be off the agenda and cuts in spending almost certain. I would say at this point this will apply to any Government, regardless of party, for the next few years. What we are facing is the end of a long period where money has been far too plentiful and far too cheap. This has enabled both governments and individuals to enjoy debt fuelled spending. There is now widespread shock that this has come to an end. Individuals, governments and investors are all struggling to come to terms with the consequences. Interest rates will inevitably rise further.

One very obvious consequence is on mortgage rates which are now between 5% and 6%. They could go higher still. The impact of this is starting to feed through into the housing market. Builders are reporting that sales are slowing. There are reports that some developments have been put on hold and we are seeing estates agents advertising ‘new price' and ‘unexpectedly back on the market'. As yet, we have no reports of developments in the District being put on hold but we are monitoring the situation.

The impact of higher interest rates is also being felt in the commercial market where buyers now have the upper hand. We hear of deals being renegotiated or falling through. This directly impacts on some of the initiatives we have been pursuing.

At the District Council we are now faced with three issues:

  • We are revising down our view of the funding that may be provided to us by central government, and we did not expect generosity in the first place.
  • We have great uncertainty over the direction of travel of policy in the medium term which makes planning difficult.
  • There is obvious pressure to do what we can to tackle the cost-of-living crisis. There has been a meeting between Warwickshire County Council and the Districts and Boroughs in Warwickshire to co-ordinate our approaches to ensure we deliver best ‘bang for the buck'. There are very real limitations on what can be done without cutting back on other services or jeopardising the Council's finances over the next few years. There are no easy options. There are people who appear to focus on the short term and attempt to ignore the longer term and the resultant negative consequences.

If there is one piece of better news, it is that our District Council finances are relatively strong as a result of sound decisions taken over the last few years.

Finally, I want to touch on the subject of economic growth. The limitations on the Government's capability to borrow cheaply will put even more emphasis on the need to grow the economy. It is the only way in which we will be able to maintain the level of spending on public services including health.

There was an interesting piece in the Financial Times on Saturday 15 October. It reported a survey of 10,000 people. Where people estimated their annual retirement income, they overstated the figure by 30%. The estimated figure was reported as £21,730, the actual £16,540.

Low economic growth may make this situation more challenging still. I think it is a stark illustration of the cumulative impact of the UK's poor economic performance.

It might make this Council's focus on supporting economic growth in the District much more understandable and, with our ageing population, extremely relevant to their future prospects and financial security.

23 September 2022

Energy prices and supply still appear to be some of the main issues. The domestic price cap of £2,500 is very welcome, as is the commitment to do something about non-domestic bills.

Supply issues may be a bit more fraught; the decision by Putin to cease deliveries through the Nordstream 1 pipeline caused an immediate spike in gas prices, since reversed. The constraints on supply and the need to reduce consumption, especially in Germany is likely to cause a recession and it looks as though there will be a need for rationing this winter.

Although we may think that the UK is remote from the impact of the closure, it will have a knock-on impact. Anything that will interrupt supplies this winter, and there are many possibilities, could mean that we get power cuts.

In some ways this could be a blessing in disguise, because it would change the perception of security of supply from an abstract concept to something very real. This could force the UK to have a well thought through and realistic energy policy. Something we do not appear to have had for at least 30 years. Such a policy would recognise very clearly the variability in supply from renewables. There is a clear need for greater investment in nuclear and there will have to be acceptance that we are going to need a significant proportion of energy supply coming from fossil fuels for the next 15-20 years. This will not please many people, but the alternative may be regular power cuts.

The reasons why we have not had an effective energy policy for so long reflects some of the deep-seated issues the UK faces; an inability to think strategically, a reluctance to invest at the necessary scale, and an unwillingness to face down opposition and pressure groups when it needs doing.

The need for businesses to have some relief from high energy prices is important. High levels of inflation are causing real difficulties. The squeeze in people's disposable incomes is really being felt. High energy and increasingly, food prices mean that people will have to spend more on the basics, leaving them less to spend on ‘nice to have' purchases. Pensioners on fixed incomes will also be hard hit. Unsurprisingly this will affect retail, hospitality and tourism, so we could take a disproportionally hard hit locally.

The cost to the Government of providing the support for energy prices will, it is assumed, be met by borrowing. Unfortunately, interest rates are rising so borrowing will be more expensive. There appears to be the first signs that investors are losing confidence in the UK. An illustration of this is that the pound fell to $1.15 last week. (As an aside, when Queen Elizabeth ascended the throne in 1952, £1 was worth $2.80.) This pushes up inflation, which in turn means that the Bank of England may need to raise interest rates more aggressively. Inflation is already having a direct effect on the funds allocated for Levelling Up and the Shared Prosperity Fund. The amounts bid for will not enable completion of the projects. Allocation of more funds may be challenging, so projects will need to either be scaled back or cancelled.

Given the new Government's shift in focus to economic growth, extremely welcome and long overdue in my view, it may well be that the criteria for successful bids in future will change to focus on a clear link to generating economic growth.

The circumstances we face as a District Council will put an even greater premium on thinking strategically, taking difficult decisions and most definitely not ‘kicking the can down the road' and hoping something turns up. It will be a time for a clear-eyed realism about what we can and can't do for our residents.

Contact: The Communications team

Last updated on 20/01/2023