WEST Somerset Council could be forced into the red by Government-led changes to the business rates system unless it finds significant savings in the next few months.

Councillors have been warned they need to make £600,000 in cuts to next year’s budget, which could mean more job losses, service reductions or additional borrowing at the cash-strapped authority.

It will be a particularly bitter pill for the council to swallow having put itself on a firmer financial footing by joining forces with neighbouring Taunton Deane Borough Council.

The link-up saved West Somerset more than £121,600 last year.

But the council has been hit hard by changes to the business rates system, which has resulted in scores of firms appealing their ratings – including the district’s most significant employer, Hinkley Point B.

The authority confirmed this week that Hinkley B owner EDF Energy had secured a new valuation of £8 million – a reduction of £3.1 million – backdated to 2010, and that will effectively cost West Somerset £313,000 a year in lost income.

With the council’s net budget just £4.8 million a year, coupled with an existing £228,348 overspend on the general fund, the news was a blow for both councillors and officers.

“We have made good progress in our drive towards financial sustainability,” said Mandy Chilcott, the council’s deputy leader.

“We have made savings from our joint working with Taunton Deane and, unfortunately, due to an appeal decision which is outside our control, we are now back to square one.”

She said the backdating of the new valuation for Hinkley B had left the authority’s general fund reserve close to its minimum level, leaving no contingency for any future volatility in business rates funding or other unforeseen costs.

Cllr Chilcott said: “We are in a difficult financial position – delivering services to a largely sparse and rural community with little opportunity or potential for growth to improve out income.

“We will be discussing our position with Government and hope we can find a way of ensuring our community continues to receive the level of services they need in the future.”

Business rate payments form a core part of the council’s funding and next Wednesday’s cabinet meeting will be the first time councillors discuss the funding challenges in public.

Shirlene Adam, the council’s director of operations and deputy chief executive, said the Hinkley B settlement and overall impact of the new business rates scheme had been “hugely significant” to West Somerset.

“Accounting for this has resulted in an overspend of £228,348 being reported on the general fund, which is not good news and means reserves are now effectively at the minimum acceptable level.

“Despite balancing the budget for 2015/16 and the work undertaken already to reduce costs, the financial position remains very serious for the authority,” Ms Adam said.

She said councillors would face some tough decisions in order to ensure the authority could continue to deliver services:

“The excellent progress in achieving this over the last year has been somewhat negated by the impact of the business rates appeal on Hinkley B.

“The council is facing a serious financial challenge and members will need to make some difficult decisions over the coming weeks and months.

“A reduction in the council’s net budget position is essential to the future sustainability of the council.”

Despite winning its business rates appeal, Hinkley B owner EDF still pays annual rates of £3.9 million, the bulk of which goes straight to the Government.

A spokesman for EDF said: “Hinkley Point B power station makes a major contribution to the local economy through its spending on services and jobs as well as local and national tax.

“That includes £40m a year on wages for employees.

“The Government decides how much tax the business should pay and our bill for business rates will be £3.9m in 2015/16.

“In addition the power station pays millions in national tax.”