Future financial challenges and lower than forecasted spending on capital projects were anticipated at yesterday's Babergh cabinet meeting.

An estimated overspend of £782,000 by Babergh this year would be offset by reserves, but Babergh's cabinet member for finance Dave Busby accepted future years are likely to be challenging.

The forecast was made in general fund financial monitoring reports for quarter one, which compares current forecasts with those provided in February.

Quarter one reports also indicated likely underspends on capital projects. Despite a budget of £23.628m at Babergh for spending this year, at the end of quarter one just £515,000 was spent.

Capital projects without any spending in quarter one include grants for affordable housing and work on play equipment.

Liberal Democrat councillor David Busby, said at yesterday's cabinet meeting: "For 2023/24, we can predict costs will be going up.

"But what we are very uncertain of is where we are going to get the income from to fund that.

"If government support doesn't increase imminently, then we will have some pretty tough challenges facing us.

"On the capital side, expenditure for the first quarter was minimal. I suspect we will be well short of forecasted spending by the end of the year.

"We will need to make sure each project is viable given the current economic environment.

"When we put these plans together, it was a different environment. We might not go ahead with them all, as the costs will go up and we won't necessarily want to lose income."

Babergh had total earmarked reserves of £13.743m in April 2022, and this is forecasted to reduce to £8.419m in March 2023.

There was a similar story at neighbouring Mid Suffolk District Council which had a £785,000 over spend.

Mid Suffolk District Council had total earmarked reserves of £24.262m in April 2022 and it is forecasted that this will drop to £21.667m in March 2023.

The expected overspends this year would be partly covered by a £500,000 inflationary pressure reserve at both councils.

At Babergh, the remaining would be offset through a strategic priorities reserve. At Mid Suffolk, the rest would be offset through a growth and efficiency fund.

Cabinet member for finance at Mid Suffolk District Council, Conservative councillor John Whitehead, said at yesterday's cabinet meeting: "The information we have before us today suggests there is no cause for panic or alarm with our district finances.

"Our balances remain robust and healthy. The future's certainly more challenging, but it's still bright.

"It really is impossible to forecast how much of the overall capital programme will be spent over the next year but, where slippages occur, capital spending will almost certainly carry forwards into future years."

The pressure of inflation, which increased to 10.1% in July, is the main reason given for forecasted overspends.

At both Babergh and Mid Suffolk, the area with the highest difference between February's forecasts and current expectations was employee wages, which make up approximately 40% of the council's revenue expenditure budget.

A national pay award offer tabled in July, but not yet agreed upon, was close to 8% – much higher than the 2.2% increase in wages estimated by both councils in February. This equates to an additional cost of £580,000 at Babergh and £638,000 at Mid Suffolk.

The area causing the second highest variation at Babergh is professional and consultancy fees and contracted services, estimated to cost £65,000 more than forecasted in February.

At Mid Suffolk, electricity causes the second highest variation on forecasts – with expected costs £70,000 higher than estimated in February.