Hampshire County Council looks to dip £70m into reserves if application to raise tax precept by 15% is not approved by government

AN option has been put forward to raise the county council’s precept to the usual limit of 5% – but draw nearly £70m from reserves – after the authority had applied to raise its share by 15%.

Hampshire County Council has yet to have its request for exceptional financial support (EFS) approved by the government, which would allow a three times higher than usual tax increase.

However, if fails in its application, and the council does not agree to seek to increase its precept beyond the limit of 4.99% - which would trigger a referendum - then council tax would be set at 4.99%.

In this case, a draw from reserves of £68.2m would be required to balance the budget.

Chief financial officer Rob Carr submitted the request letter for EFS on 23rd December. In that, he detailed the council’s “impossible” financial position, facing a budget deficit of £182m in 2025/26, rising to £266m by 2026/27.

Despite being described as a “well-governed” and “well-run council,” the administration has insufficient savings to fill the budget hole.

Even counting the savings at their maximum only brings the net recurring budget deficit down to around £62m for 2025/26 and £112m for 2026/27.

“This confirms my long-held view that even at legal minimum service levels, the county council cannot find sufficient recurring savings to balance the budget on a sustainable basis from 2025/26 onwards,” he said in the letter to Nico Heslop, the director of Local Government Finance.

He added that the council had reached a “tipping point”, in that it cannot generate enough recurring savings to balance the budget from 2025/26 onwards and still meet statutory duties.

Therefore, it had requested an increase in council tax above the threshold of 5% to avoid the use of reserves to balance the budget.

However, doing so is not a “sustainable, nor responsive solution for balancing the budget”.

Council tax for New Forest residents comprises precepts for Hampshire County Council, police and crime commissioner, New Forest District Council, town and parish councils, and Hampshire and Isle of Wight Fire and Rescue Service. HCC makes up the lion’s share, which for 2024/25 was nearly £111m from a total of £159m

If the government agrees to the EFS request and allows a 15% increase in 2025/26 and a further 10% in 2026/27, no draws from reserves would be required over the next two years.

In 2025/26, it will generate £83.5m of additional recurring income. The impact of a 10% increase in the following year would reduce the recurring budget to £53.6m, alongside the government settlement, the voluntary staff resignation scheme and the savings proposals.

Since the decision has not yet been made, the council has recommended two alternatives for the 2025/26 council tax precept.

‘Set A’ proposes that if the request for EFS is agreed, the council tax will be set at 14.99%. If it is not agreed, the cabinet recommends that the county council set council tax at 15% and trigger a referendum on 1st May. A public vote would likely cost more than £2m and, if unsuccessful, could result in re-billing costs of £400,000.

This alternative would allow the council to close the budget and make a “small” contribution to reserves.

‘Set B’ proposes that, if the request for EFS is not agreed and the cabinet does not recommend to the county council to increase council tax above the limit, then council tax would be set at 4.99%.

In this case, a draw from reserves of £68.2m would be required to balance the budget.

Cabinet will discuss recommendations on 4th February.