Folkestone & Hythe District Council Budget Half-Time Score: Council Tax, Reserves and Capital Borrowing Explained

Six months after councillors approved this year’s budget on 26 February 2025, new second-quarter (Q2) monitoring reports show a familiar picture at Folkestone & Hythe District Council (FHDC):

• day-to-day services under pressure,

• a huge capital building programme heavily reliant on borrowing, and

• the gap between the two quietly bridged by reserves and technical accounting fixes.

For residents, the key questions are simple:

• Is the council living within the budget it set in February?

• Where does the money actually come from – and where is it going?

This article unpacks both the General Fund (the day-to-day running costs) and the Capital Programme (the big projects) in plain English, and compares the February 2025 budget with the latest September 2025 projections.

February’s Deal: What Councillors Voted For

The Revenue Budget (General Fund)

Back in February, Full Council agreed a net General Fund revenue budget of about £22.3 million for 2025/26. After planned transfers to and from reserves and technical adjustments, that translated into £20.0 million that had to be raised from council tax, business rates and government grant.

The Q2 monitoring table confirms that position:

• “Total to be met from taxpayers & formula grant” (Latest Approved Budget): £20.018m

• Planned financial result for the year (Latest Approved Budget): £93k deficit – a small planned overspend to be covered by reserves.

The Capital Budget (Big Projects)

On the same night, councillors also signed off a five-year General Fund Medium Term Capital Programme (MTCP) running to March 2030. That programme was:

• £122.272m in total over 2024/25–2029/30,

• including a 2025/26 capital programme of £31.701m.

This capital programme included everything from:

• major schemes like Otterpool Park Garden Town,

• the Folkestone – A Brighter Future Levelling Up Fund project (FOLCA and town centre),

• the new leisure centre,

• coastal defences and cliff stabilisation,

• play area refurbishments, street lights and IT systems.

The General Fund: The Council’s Day To Day Chequebook

Think of the General Fund as the council’s monthly household budget – staff, bins, homelessness support, parks, planning, environmental health, democratic services and more.

Where Does The General Fund Money Come From?

From the Q2 monitoring summary, the Latest Approved Budget for 2025/26 expects the £20.018m to be funded broadly as follows: 

• Council Tax (“Demand on the Collection Fund”) – £15.785m

• Business Rates (“Business Rates Income”) – £4.063m

• Revenue Support Grant & redistributed national NNDR – £0.263m

That means, in round terms:

• around 4 in every 5 pounds (≈79%) of the council’s day-to-day budget comes from Council Tax,

• about 1 in 5 (≈20%) comes from locally retained Business Rates,

• and roughly 1% from what’s left of central government’s Revenue Support Grant.

On top of this headline funding, the council also uses:

• specific government grants for particular services (e.g. housing benefit subsidy, homelessness grants),

• fees and charges (car parking, garden waste subscriptions, planning fees, etc.),

• and transfers from earmarked reserves – pots of money set aside in previous years.

The Q2 report shows earmarked reserves expected to fall from £15.7m to £9.8m over the year, with total General Fund reserves forecast to drop from £21.6m to £15.7m – a net use of about £5.8m. This is broadly negative for the council’s financial resilience: reserves are there to cushion one-off shocks, but drawing down nearly £6m in a single year to support the revenue budget means less of a safety net – and less flexibility – in future years. 

What Has Changed Bt Q2?

By 30 September 2025, the picture has shifted:

• Net cost of services (all directorates combined) is forecast to overspend by £1.27m against budget.

• After technical adjustments (notably capital financing) and planned reserve movements, the overall projected deficit for 2025/26 is now £435k, compared to the £93k planned deficit at budget-setting.

In other words:

The mid-year forecast shows the council around £435,000 short of its February plan – roughly double the small gap councillors agreed to tolerate when they voted the budget through.

Where are the pressures?

The detailed variance analysis (Appendix B) and the narrative in the revenue report point to three main pressure points:

1. Housing Benefits and Rent Rebates

   • Housing Benefits: +£382k adverse variance – largely due to lower-than-budgeted subsidy from central government.

   • Rent Rebates: +£949k adverse variance – driven by higher temporary accommodation costs and lower associated subsidy.

2. Council Tax Reduction Scheme: +£598k

   • Income previously expected from a now-discontinued Kent-wide scheme has not materialised, leaving an unbudgeted hole.

3. Other smaller pressures

   • Extra staffing and running costs in certain services,

   • reduced grant income in some areas,

   • and additional costs such as utilities.

In plain language: the council is being squeezed by the cost of temporary accommodation and changes in how welfare support is funded – areas heavily influenced by national policy but landing squarely on the district’s bottom line.

What Are The Offets & “Good News” Lines

The overspends are partly offset by a mix of vacancy savings and higher-than-expected income:

• Staff vacancies in Planning & Building Control, Regulatory & Community Services and other teams generate significant savings (six-figure totals).

• Parking income and garden waste subscriptions are higher than budgeted – for example,

  • garden waste income is projected £74k better than budget,

  • car parking fees and penalties £212k better than budget (compared to earlier projections).

• Lower pension back-funding costs save £114k against budget.

And the single biggest technical help:

• A £742k favourable variance on Minimum Revenue Provision (MRP) – the annual amount the council must set aside to repay borrowing – following a revision of how capital loan expenditure is treated.

That last item is not free money – it is effectively a change in the pace at which the council pays off past borrowing. It eases pressure this year, but pushes cost into future years.

If Alan Mitchell s151 Officer (pictured) and the man responsible for the Council’s money were leafing through the Q2 figures, he might murmur to Cllr Tim Prater – Cabinet Member for Finance:

“Cllr Prater, the situation is not so much a deficit as a re-calibration of our prudential borrowing trajectory, artfully aligned with a dynamic benefits environment.”

Residents might translate that as: “We’re overspending, but we’ve bought ourselves some breathing space with accounting adjustments and reserves.”

The Capital Program: Bricks, Mortar & Sea Walls

Where the General Fund is about this year’s running costs, the Capital Programme is the council’s long-term building plan – projects that create or improve assets lasting more than a year.

What Did February’s Capital Decision Look Like?

In February, councillors signed off a five-year General Fund Medium Term Capital Programme of £122.272m to 2029/30, including £31.701m in 2025/26

Major schemes include:

• Otterpool Park Garden Town – total projection £51.446m over the programme.

• Folkestone – A Brighter Future (Levelling Up Fund) – £18.988m.

• FOLCA 2 – £12m towards redevelopment of the former Debenhams and town centre.

• Leisure centre development – £26m.

• Coast protection and beach management schemes, cliff stabilisation, Royal Military Canal improvements, play areas, IT upgrades and more. 

The Q2 Update: Slippage, Tweaks And A Slightly Bigger Total

By Q2, the capital reports show two key changes:

1. In-year (2025/26) capital spending is slipping backwards

   • 2025/26 capital budget: £31.701m

   • Latest projection for 2025/26: £30.071m

   • Underspend in-year: £1.63m, almost entirely due to projects being reprofiled into 2026/27 rather than cancelled.

   Major examples of slippage include:

   • Coronation Parade coast protection – £742k moved to 2026/27 while a new Environment Agency funding bid is prepared.

   • Coastal Park play area refurbishment – £720k shifted to 2026/27, with main works now planned to start in spring 2026.

   • Works at Westenhanger Castle and The Stade rental huts, and parts of the Mountfield Road scheme, also pushed into later years.

2. The five-year MTCP has crept up slightly

   • Latest Approved MTCP Budget (to 2029/30): £122.272m

   • Latest total projection: £122.470m

   • Net increase: £0.198m

   That small overall increase comes from:

   • extending the UK Shared Prosperity Fund and Rural England Prosperity Fund capital grant schemes into an additional year, adding £239k of new grant-funded projects;

   • reinstating £21k for the “Collaborative Planning” upgrade, a capital cost linked to the finance system;

   • offset by a handful of small schemes no longer going ahead, freeing up £42k of capital budget.

A Different Way Of Funding The Town Centre Project

One subtly important change concerns “Folkestone – A Brighter Future”, the Levelling Up project. The February plan included £1m of capital receipts (from asset sales) as part of FHDC’s match funding. The Q2 report proposes replacing that:

• £1m capital receipts removed,

• replaced by £353k from the High Street reserve and £647k from Community Infrastructure Levy (CIL).

This doesn’t change the total cost of the scheme, but it changes who pays:

• Capital receipts are general capital funds that could support other projects or reduce borrowing.

• CIL and ring-fenced reserves are more tightly tied to specific types of infrastructure or locations.

Residents might reasonably ask whether this shift narrows the council’s flexibility elsewhere in the capital programme.

Where Does Capital Money Come From?

The capital reports spell out how the £30.071m 2025/26 capital programme is funded, and how the full five-year £122.470m MTCP is financed.

2025/26 Capital Funding (Projected)

For this year alone (2025/26), the projected £30.071m of capital spending is funded roughly as:

• Government capital grants – £18.3m (≈61%)

  • Includes Levelling Up Fund, UK Shared Prosperity Fund, Rural England Prosperity Fund, Disabled Facilities Grants and other national programmes.

• Other external contributions – £0.9m (≈3%)

  • Includes things like CIL and other partner contributions.

• Capital receipts – £1.7m (≈6%)

  • Money raised from selling council assets (buildings, land).

• Revenue contributions – £0.6m (≈2%)

  • Directly from the revenue budget or reserves.

• Borrowing – £8.5m (≈28%)

  • Prudential borrowing to be repaid over future years.

Five – Year Capital Funding (24/25 – 29/30 Total)

Looking across the whole five-year MTCP: 

• Government grants – £26.967m (≈22%)

• Other external contributions – £3.297m (≈3%)

• Capital receipts – £8.603m (≈7%)

• Revenue contributions – £1.876m (≈2%)

• Borrowing – £81.727m (≈67%)

Two key takeaways:

1. This year’s capital programme is mostly grant-funded – a relatively safe position in-year.

2. Over the full five-year horizon, nearly two-thirds of the capital programme relies on borrowing.

And that loops us straight back to the revenue budget: every pound borrowed for capital projects has to be serviced through:

• Interest payments (budgeted at £3.093m in 2025/26), and

• Minimum Revenue Provision (MRP) – a non-cash but very real cost, currently forecast at £1.783m for 2025/26 after the favourable £742k adjustment.

So, when the council says it has found a £742k saving on MRP this year, what that really means is: “We’re stretching the mortgage over a longer period.”

General Fund vs Capital: How Do They Compare?

Set side by side, the General Fund and Capital Programme tell a story of short-term pressure and long-term ambition

General Fund (25/26)

• February plan: £93k planned deficit, funded from reserves.

• Q2 forecast: £435k deficit, mainly due to benefits, rent rebates and council tax support pressures.

• Underlying service overspend: £1.27m, softened by vacancy savings, extra income and a large MRP adjustment.

Capital Program (25/26 & MTCP)

• February approval: £31.701m 2025/26 capital budget; £122.272m over five years.

• Q2 projection: £30.071m 2025/26 spend (slippage); £122.470m over five years (slightly higher).

• Funding: Heavy reliance on government grants in-year, but around two-thirds borrowing over the full MTCP.

• Some project funding reshuffled (notably for the town centre Levelling Up project) from asset sales to High Street reserves and CIL.

What It Means For Residents

For residents trying to translate council-speak into everyday language, three points stand out:

1. Your council tax is doing the heavy lifting

   • Close to 80% of FHDC’s day-to-day spending power comes from council tax.

   • Business rates add most of the rest; direct central government support for the General Fund is now marginal.

2. The real budget pressures are in areas the council only partly controls

   • Temporary accommodation, rent rebates and council tax support are being driven by national housing and welfare pressures, but the bill lands locally.

   • Without structural change, these pressures risk persisting year after year, eroding the council’s financial resilience.

3. The capital ambitions are big – and will shape future bills

   • The district is pursuing major long-term projects: Otterpool, leisure facilities, town-centre regeneration, coastal defences.

   • While much is funded by grants, the £81.7m borrowing in the five-year plan will sit on the revenue budget for decades via interest and MRP – impacting what is available for everyday services.

The Choices Ahead

By the time councillors sit down to set the 2026/27 budget next February, they will need to decide how to respond to this mid-year picture:

• Tighten spending on discretionary services?

• Raise council tax and/or fees and charges further?

• Use reserves again, accepting that the cushion is shrinking?

• Or re-profile and scale back elements of the capital programme to reduce future borrowing costs?

The Shepway Vox Team might gently remind Cllr Tim Prater (pictured) – Cabinet Member For Finance:

“Cllr Prater, the figures do add up – they just don’t add up to what you originally said they would.”

For residents of Folkestone & Hythe, the Q2 reports confirm that the council remains solvent and broadly on track, but that its finances are becoming more tightly stretched.

The February promises are still recognisable – but the numbers underneath them are already starting to shift.

The Shepway Vox Team

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