When is £125m not £125m?

I’m sure you have heard that Aberdeen City Council plan to save £125m in the next five years. £125m over five years is £25m per year. That’s about 3.5% of our annual spend, and that level of saving should be manageable.  It is a figure that has been well publicised and one that most staff will be aware of. It seems though that is not exactly clear what this means. Whether by accident or design, people have been misled.

Try this tricky problem for size.

If I asked you to save £125 from your pay over the next five months.  After five months how much would you have?

I’m guessing that you answered £125. It’s a simple question.

If though I asked you over the next five months to build up a savings plan by which you were able to save £125 PER MONTH, I’m sure that you would agree that this is something different.

So what has this got to do with ACC?  The problem of ACC’s £125m is being presented to us as if it was the first question, when it is in fact the second question.

Saving £25m each year just once

If we had to only had to make £125m of savings, like in the first question above, this table is how it would be done. However, as indicated above, the idea of saving £125m PER YEAR by year 5 looks a little different.

Here is what this scenario looks like:

Cumulative savings of £25m every year

Having saved £25m in the first year, we go on to save another £25m in the second year, BUT on top of that we have to save the original £25m again. In year 3 we have to save a further £25m, but we also have to save the £25m from year 2 AGAIN and the £25m from year 1 AGAIN. And so on…

So, if someone asks you how much the council has to reduce its annual budget by over the next five years, the answer is £125m. If however you are asked how much the council has to save over the next five years, the answer to that is in the region of £400m+!

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