Folkestone & Hythe District Council Budget Surplus Masks £3m Service Overspend

Folkestone & Hythe District Council says it ended 2025/26 with a small General Fund surplus. But its own papers show a harder story: services overspent, Princes Parade was written off, reserves were used, and a sharp fall in the debt-repayment charge helped the final number look better.

The General Fund is the council’s main day-to-day spending account. It pays for ordinary services such as planning, homelessness, waste and street cleansing, licensing, parking, parks, corporate costs and other local services outside the separate Housing Revenue Account. So when FHDC reports its General Fund revenue provisional outturn, it’s reporting how the ordinary running-cost budget performed, not the housing landlord account and not the capital programme.

Folkestone & Hythe DC’s headline is simple: a provisional £90,000 surplus for 2025/26. That sounds very tidy to residents. But the same report says overall service spending was £3.034m over the latest approved service budget, with the final position rescued by “below the line” technical and funding movements. The surplus is real on the provisional papers, but it doesn’t mean services quietly came in under control.

Appendix A shows the service position clearly. “Total for Service” had a latest approved budget of £21.026m and a provisional outturn of £24.060m, leaving the published £3.034m adverse variance. Against the earlier February 2025 service-budget baseline used in the reconciliation work, the gap is larger still: roughly £4.480m. The final answer may be a surplus, but the route there wasn’t comfortable.

The worst service pressure was Corporate Estates & Development, which ended £3.081m over budget. Almost all of that came from the Princes Parade Planning Project, where Appendix B shows a budget of £119,000, an outturn of £3.357m, and a £3.238m adverse variance because the project was written off. The report says the movement is covered by the Financial Resilience Reserve, but that doesn’t make the write-off disappear. It means the council used a reserve to absorb the hit.

The second big pressure was Governance & Finance, £1.940m adverse. The report says this was driven mainly by £2.404m of expenditure for rent rebates, housing benefits linked to temporary accommodation, council tax benefits and council tax reduction scheme income no longer being received. Appendix B gives the sharper breakdown: rent rebates were £1.114m adverse, housing benefits £435,000 adverse, council tax benefits £311,000 adverse, and the council tax reduction scheme £536,000 adverse. “Temporary accommodation pressure” is part of the story, but it’s too neat on its own.

Some services helped pull the other way. Regulatory & Community Services was £1.466m favourable, helped by higher parking income and Extended Producer Responsibility income. The report puts parking at £694,000 favourable and EPR income at £436,000 favourable, although £306,000 of that EPR money is being moved into reserves for future recycling work. Planning & Building Control was £480,000 favourable, Housing was £335,000 favourable, and People & Customer Services was £275,000 favourable. Those underspends helped, but they didn’t erase the service-control problem.

The biggest below-the-line rescue was the Minimum Revenue Provision, or MRP. A simple way to understand MRP is this: it’s the amount a council has to set aside from its day-to-day budget each year to cover repayment of debt linked to capital spending. It’s not the interest bill. It’s the council’s annual debt-repayment provision.

FHDC budgeted £2.525m for MRP in 2025/26. The provisional outturn was only £341,000, a £2.184m favourable variance. The council says this came from changing the MRP methodology from straight line to annuity, approved by Full Council in February 2026. That’s not a normal service saving. It’s a financing change, and councillors should ask what it does to later years.

For residents, the MRP change is easiest to see through Band D. FHDC’s own district Band D council tax for 2025/26 was £288.45. On the original MRP budget, the debt-repayment charge worked out at about £60.97 per Band D equivalent. On the provisional outturn, it falls to about £8.23. The debt didn’t vanish. The annual revenue charge changed.

Interest payable also helped. Appendix A shows interest payable and similar charges falling from £3.093m to £1.496m, a £1.597m favourable variance. The report says this was mainly because more capitalised interest was charged to Otterpool. That helps the General Fund now, but it isn’t the same as simply running services £1.597m cheaper. It changes where the cost sits.

The reserves tell their own story. Appendix C shows the Financial Resilience Reserve falling from £3.775m to just £205,000, with the note saying the drawdown was for the Princes Parade write-off. The Homelessness Prevention Reserve was also used up, falling from £1.321m to zero for the housing subsidy gap. FHDC still ended with total reserves of £22.540m, but earmarked reserves are money set aside for named purposes, not spare cash to spend twice.

Then there are the carry forwards. The report asks members to note £5.468m of unspent 2025/26 budgets being moved into earmarked reserves. Appendix D shows £1.096m for the Medium Term Financial Strategy budget gap in 2027/28 and £1.078m for the 2028/29 gap, plus £760,000 for enforcement, £505,000 for staff welfare, £306,110 for waste operations and £300,000 for local government reorganisation. That’s not just a few late invoices. More than £2.17m is explicitly being parked against future budget gaps.

So, yes, FHDC can say it ended 2025/26 with a £90,000 provisional surplus. But the fuller story is that services overspent, Princes Parade was written off, the Financial Resilience Reserve was almost emptied, MRP fell sharply after a methodology change, Otterpool interest treatment helped, historic collection-fund balances were cleared, parking and EPR income helped, and £5.468m was carried forward. That isn’t a comfortable year. It’s a rescued one.

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The Shepway Vox Team

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