A council could seek permission from government to extend special financial flexibilities.

Southampton City Council was one of 19 local authorities to receive minded-to approval for exceptional financial support (EFS) for the current financial year from the Ministry of Housing, Communities and Local Government in February.

This allows the council to use up to £121.6million of capital resources, including borrowing, to cover revenue costs.

The local authority is yet to use any of this flexibility, however, in the coming months it is expected to be called upon in some extent to plug a structural deficit in the budget, fund part of the transformation programme and potentially cover an equal pay claim liability.

At budget setting in March, the council included £39.3million of EFS to balance the books on revenue expenditure for 2024/25.

Members of the overview and scrutiny management committee heard the current middle scenario for 2025/26 had a budget deficit of £13.5million. This included savings targets and cash-limited budgets in departments.

Cllr Simon Letts, Labour deputy council leader and cabinet member for finance and corporate services, said a gap was not unusual at this stage of the process but it was “slightly larger” than he would have hoped.

He told the committee there were several ways to close the gap.

One way was to continue to show a surplus on the current budget. This currently stood at £13.2million although it was noted that this would serve to reduce the amount of borrowing under EFS rather than present additional money for the council to spend.

Another option given by Cllr Letts was to ask government if EFS could be extended for another year so the authority had the option to borrow more if needed.

“If you think about it rationally, that gap will be required late on in the budget year 25/26 because that’s the way that our cash flow goes and it is perfectly possible that a significant amount of additional transformation savings will have come forward,” Cllr Letts said.

“What I don’t want to do at this stage is come forward with a series of what I would describe as slash and burn traditional local government savings where services will be cut or buildings closed just to close a budget gap.

“It could be closed in a more holistic way over the period of the medium term financial strategy.

“There is no bonus for us to shut a building that subsequently we have to reopen because the consequences of shutting it were unknown and uncertain and we did it just to close a budget gap.”

The deputy leader said there were then a raft of known unknowns, including the government settlement, proposals on business taxes and business rates, and the approach to council tax.

Cllr Letts added: “My advice would be to my cabinet colleagues we don’t slash and burn for the sake of it.

“We explore other options which allow us to have a more steady landing curve rather than dumping services at this stage and creating further redundancies and further lack of public service from the council.”

Committee chairman and Liberal Democrats councillor Richard Blackman said the cash-limited budgets looked “quite stark” already.

He asked if extending EFS was a move being taken seriously by the executive.

Cllr Letts said it was an option that “we’re actively looking at”.

Conservative group leader Cllr Peter Baillie said extending EFS seemed like a “pretty reasonable plan”.

“The last thing you want is to slash and burn and then have to rebuilt that,” Cllr Baillie said.

“It’s disastrous for staff morale if nothing else.”