We produce a projection and we have a fan chart that sets out the range of probabilities that we are working to. Our central case is that we will have a shortfall of about £6.7 million next year if we take into account all the things that we know. We are assuming that pay will rise at 2 per cent, that there will be a 4 per cent reduction in grant funding and that inflation will continue to run at 2 per cent. We are also taking into account new pressures from changes such as universal credit and how they might affect us.
That is our base case. Obviously, that figure could go up. If you put another percentage point on pay, that will push the shortfall upwards; if the grant settlement is more favourable, that will bring the shortfall down. We have a range of possibilities—if we continue on the same trajectory as we have for the past couple of years, we are looking at saving around £12 million. That is about 12 per cent of our budget over the next two years.
That is the planning horizon that we are looking at. What have we done? We have looked at doing everything that we can to reduce loan charges and to continue to seek efficiency. Of the £35 million that we have had to save over the last period to balance the budget, about £19 million has been saved through doing things more efficiently. Sometimes, there can be a question as to whether rationalising two schools into one is an efficiency or a reduction in service, and that is a point that you could debate. We have made savings through doing things that have not diminished the outcomes that we are trying to achieve; historically, a relatively smaller sum has been saved through service reductions. However, those have been quite high profile in some cases. The removal of the Barra to Benbecula air service is the one that has perhaps attracted most attention, but we are spending less on roads maintenance and we have removed itinerant teachers, so discrete things have gone.
Because there is so much uncertainty about the figures, we have not started a public consultation exercise. It is very difficult to have a public consultation exercise when you do not know whether you are talking about a 5 per cent saving or a 10 per cent saving. However, the reality is that with a working assumption that teachers will continue to be protected, as will the IJB, and that funding for new initiatives and the loans fund will be fixed, we are looking at making savings of about 8 per cent out of about 40 per cent of the budget.
The bits of the budget that will suffer will be in leisure services, roads, non-teaching aspects of education and public transport. Those are probably the services that people will feel most strongly about, and there will be difficult decisions. I managed to look at the Scottish Parliament information centre briefing on who would be affected by the balance of services. Because most of our services are pro-poor—I think that that is the term that is used—there will increasingly be an impact on them.
The committee discussed housing in the earlier evidence session. Increasingly, and particularly where we are, there is a risk to support for rural communities. For example, transport, which is one of the discretionary services, is vital to keeping people living in rural and remote communities, but it is also one of the services that we will have to look at. We have done some good work. For example, the year before last, we did a very successful piece of work on participatory budgeting, in which we reduced the budget and got people involved in redesigning the service. However, in the very remote areas and islands, which some committee members might be familiar with, reducing services becomes more and more difficult. When we provide a minimum service at an optimum level, the only changes that we can make are to withdraw it or to shrink it. For example, we provide a leisure facility on Barra, where there is a swimming pool, and there is a fixed cost for doing so. If we have to make a saving out of it, either the facility will have to be open less or it will not continue. Those are some aspects of the challenge that we will come up against in the next period. However, we cannot get into that level of discussion on such options until we know exactly what we are talking about, or we will have a very difficult community engagement process. I hope that that has answered your question.