Shropshire Council overspent on its budget by £8.5 million last year, a new report has revealed.

It means the authority now has just £7.1m left in its general reserves – less than half the minimum recommended level.

While the overspend is slightly less than the £10m predicted at the end of quarter three, James Walton, director of resources, has warned that the council cannot afford to go so much over budget this year.

The report says: “The financial results for 2022/23 are better than anticipated, but remain significantly adverse.

“This highlights an ongoing risk that effective action to address and improve the forecast was not able to be delivered within the year.”

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Mr Walton says the problems encountered in 2022/23 have been “substantially mitigated through the budget set for the new financial year”, but he goes on to warn: “However, overspending in the new year will impact (again) on the general fund balance, jeopardising the ability of the council to sustain unanticipated shocks.”

The report says interest rates and the soaring cost of both children’s and adults’ social care are to blame for a total overspend of £16.7m across all services.

This was partly offset by an £8.2m underspend in corporate costs, put down to higher interest rates on investments and “slippage” in the council’s planned capital spending programme – a separate pot of money for big one-off purchases and infrastructure projects – meaning lower loan repayments.

The report says: “A key challenge faced by the council through the last 12 months has been increases in the inflation rates through the course of the year.

“At the point of setting the budget, our expectation was for inflation to be around three per cent for most of the year. In practice, it has consistently been higher than that.”

Mr Walton adds: “It is significant, and positive, that the overall position has not been more significantly impacted by those inflationary pressures.”

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The report sets out how the council plans to make sweeping changes to how it delivers services from this year onwards in order to plug a £50 million annual budget deficit, but warns “there is no room for under-delivery in spending reduction plans”.

The strategy is also intended to help build the council’s general reserves back up to a sustainable level, which its auditors say should be between £15m and £30m.

The report says: “The combination of earmarked and un-earmarked (general) reserves is below a level that would be regarded as safe, taking into account local circumstances.

“The medium-term financial strategy sets out an agreed plan to restore these balances to safer levels.”

The financial outturn report for 2022/23 will be presented to cabinet at a meeting next Wednesday.