A possible freeze of Council Tax and an increase in ferry fares – just some of the decisions being made by councillors in Orkney in the coming week.

All financial decisions for the year ahead are intrinsically linked to what is put forward in the Scottish Budget, which itself is dependent on what is decided by the UK Government and its Budget.

The UK Chancellor will deliver his Spring Budget on Wednesday 6th of March. Scotland may have a Parliament and its own Government, Orkney may have its own islands council, but ultimately the economy is controlled via the UK Treasury. Cuts in real terms to funding for public services, cuts in real terms to welfare benefits – all of these are dependent upon what the UK Chancellor decides.

If there are cuts to welfare benefits and public services the Scottish Government will try to mitigate those by putting more money into them. Local Authorities only raise a limited amount of cash through council tax, most of their funding is distributed to them from the Scottish Government – 66%. In Orkney there are reserve funds which can be dipped into to prop up essential services. Councillors in Orkney have agreed to take up to £20M from the Strategic Reserve Fund.

Your income tax, your business taxes, revenues from the likes of whisky, oil and gas, etc these are paid into the UK Treasury. The UK Chancellor Jeremy Hunt will decide how he uses your money on Wednesday. He has control of how the economy of the UK is managed. Currently in a recession. The UK Government has a lot of debt and the economy has stagnated.

Government debt (which is largely the stock of past borrowing) is equivalent to 96.5% of GDP. Debt is around 60% of GDP higher than it was in 2007. Debt increased significantly during the 2007-2009 financial crisis and the Covid-19 pandemic. The last time debt was higher than 90% of GDP was in the 1960s. Debt has been higher, though, particularly after periods of war. House of Commons Library

The UK Government’s underlying debt (excluding the Bank of England’s net debt) is 88% of GDP (Gross Domestic Product). This is the measure of debt used in the Chancellor’s target for government debt. The OBR (Office for Budget Responsibility) forecast in March is that underlying debt would continue growing each year before falling in 2027/28 and 2028/29.

Scotland, and Orkney, used to receive a lot of funding via the European Union, but that is gone now that we are no longer a member. The money that the UK once contributed to the EU is not being distributed to areas like Orkney, to sectors like farming, in anything like the proportions that we got from being a member of the world’s largest free trade market.

In Orkney, if there is a real terms cut to how much Scotland receives back in money it has paid into the UK Treasury, this will be reflected in how much is distributed to our own local authority from the Scottish Government. It could mean that the Council Tax freeze will be off and a rise of 10% will take place.

What we do know is that Ferry Fares for Orkney’s internal routes which are run by the council will increase by 8.7% this year. The increase will come into force on 1 April 2024 until 31 March 2025 and affect all fares – except for multi journey books of 50 tickets which will rise by 13.7%.

Fares on external ferry services, subsidised by the Scottish Government, which have been frozen for four years will also rise by 8.7%.

The Council’s Transportation Service Manager, Laura Cromarty, said:

“Elected members agreed previously that we would align the Orkney Ferries fares with the Scottish Government subsidised ferry services. This is because Orkney Ferries is now fully revenue funded by the Scottish Government, so it makes sense to be consistent with any fare increases.

“However, the 50 x multi journey books of tickets do not form part of the new fare structure and so will see a previously agreed increase of 5% over and above the base rate increase to fares. Options continue to be looked at in relation to the replacement of the multi journey books of tickets to ensure a fair system for all. This will be considered further once Orkney Ferries Ltd have moved over to a new booking system.”

Commenting on the financial situation in Orkney OIC Leader, Heather Woodbridge said:

“The financial situation today is unsustainable, with our reserves now being used to prop up our revenue budget. Very much like a household budget under pressure, we are also significantly dipping into our savings to keep the lights on and the bills paid.”

Fiona Grahame