Powys could be forced to use reserves over NI costs

Powys County Council could be forced to dip into funds its squirrelled away for a rainy day to pay higher staff National Insurance (NI) costs that have come into force.

In answer to a question by a senior councillor, interim head of finance Ann Phillips has said that the council might need to use reserves to cover the extra costs.

Last month it was revealed that the NI hike will leave Welsh local authorities with a massive shortfall to cover with estimates ranging from £20 million to £65 million.

This is because of the way the UK Government Chancellor Rachel Reeves MP has decided to allocate funds to English councils to cover their increased NI cost.

Under the Barnett formula which allocates funding from the UK Treasury to the Welsh Government, Wales is not expected to receive the full actual cost of the NI hike but a share of the English costs.

The is because English local authorities have suffered deeper cuts to services than Welsh ones – and correspondingly have less services and staff to fund.

Plaid Cymru group leader, Cllr Elwyn Vaughan asked: “All public bodies in England will be protected against the national insurance increases cost.

“However, they have decided to fund Wales via the Barnett formula thus a  decision that is leaving Wales £65 million short of funding.”

Cllr Vaughan asked: “What effect will this have on Powys council financially?”

Interim head of finance Ms Phillips answered: “All councils in Wales have provided estimates of the expected increase in cost of the national insurance increase for our directly employed staff, including teachers and the staff employed within providers delivering social care.

“Although we are aware that the funding is being transferred through the Barnett formula, and there may be a shortfall,  we do not have any detail about the overall quantum and what it is expected to cover.”

Ms Phillips explains that as part of this year’s budget setting process money has already been allocated to pay for the growth of national insurance costs for social care providers.

Ms Phillips said: “But we expect funding from Welsh Government to cover the cost of our directly employed staff.

“We have specific reserves set aside for payroll pressures, and this would need to be drawn against if there is a budgetary shortfall.”

Ms Phillips added that as soon as the council has “clarity” on what will be funded or not, the finance department will work out what the overall financial impact to the council will be.

The last financial report for the 2024/2025 budget as it stood at the end of February, the council had a total of £55.259 million in usable reserves.

In April, the new class one  National Insurance costs for employers increased from 13.8 per cent to 15 per cent.