Shetland Islands Council became the country’s richest local authority after cash poured into the council coffers ever since the oil boom in the 1970s.
But the oil money has been flowing out at an alarming rate and the council has now approved a budget cut of 10% to halt the tide of overspending which it has been warned could see it sink within the next four years.
The council has to save £38million to avoid bankruptcy by 2017 and is planning to cut hundreds of staff jobs and close nine schools as part of an attempt to claw back money across the whole organisation.
Council convener Malcolm Bell approved a budget of £116million on Wednesday, including savings of £12.5million.
This comes on top of £16million savings made this financial year, which puts the authority 70% of the way to meeting the five-year target.
Since 2010 the authority’s 3,000 strong payroll has been reduced by 274 and during the next financial year a further 300 jobs are expected to go across all departments although council has pledged to avoid compulsory redundancies if possible. Yesterday, Mr Bell said the council’s financial problems could be traced back a generation to when the oil money first started coming in.
He said: “This is something that has taken 30 years to create. We have been overspending since the beginning of the oil era. The oil reserves have been used to provide a lot of good things in Shetland – some of our care homes and sport facilities are the among the best in Europe.
“Previous councils used to find it easier to postpone difficult decisions by using the reserves but the reality is that the public and the community are used to an exceptionally high level of service and that’s where we’re going to have to work hard to bring the community with us so they are able to understand why were are having to reduce services.
“It’s similar to a family which has savings for a rainy day and then starts paying its weekly grocery bill from savings – very shortly they are going to be in trouble.
“When we came into office in May it was put into very sharp focus for us that if we didn’t stop doing that the reserves would be gone within the lifetime of the council.
“We were overspending by about £35million a year. We had to act to avoid the reserves going and having to deal with that overnight. Clearly that would have been catastrophic.”
Mr Bell said they were determined to turn the crisis round.
He added: “We have been overspending in general and living well beyond our means. This new council is determined to avoid a situation where the money runs out. Equally we are determined to still deliver exceptional services to the public of Shetland. I believe our best days are still ahead.”
He said they had drawn up a financial plan which aims to achieve financial stability for the council and have £125million of oil reserves which would give an income of £5million to £6million for “little extras.” At the moment SIC has about £190million in the oil reserves.
Mr Bell added: “We need to develop a clear vision of what the council will look like in 2017; what services we aim to deliver and how we are going to do that.”
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