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Caerphilly County Borough Council’s leader has warned the authority is moving into a “scary world” amid a gloomy outlook for local government finances.

Cllr Sean Morgan made the comments as it emerged the council may need to save nearly £50 million over the next two years if it is to navigate wider economic pressures, including inflation and changing settlements for local authorities.

The council has predicted a net underspend of £8.3 million in its provisional budget outturn for 2022/23, in anticipation of an “extremely challenging” few years ahead.

That underspend is “significantly lower” than the previous two years, when the council underspent by £38.5 million and £37.8 million in 2020/21 and 2021/22, respectively, cabinet member for finance, Cllr Eluned Stenner, told cabinet colleagues this week.

The increase in spending “signifies the return of a more realistic picture of financial performance” that is “not impacted by the significant levels of external grant funding received in recent years in response to the Covid-19 pandemic”, she added.

The council has underspent in departments such as education (excluding schools, which is ring-fenced), social services, and corporate services, according to the provisional budget outturn.

But the council has overspent on schools to the tune of more than £5.9 million, Cllr Stenner added, meaning the council’s school balances have been slashed from £17.2 million to £11.3 million.

As of March this year, five primary schools and three secondary schools in the county borough have deficit balances, totalling £1.1 million.

The general underspend means more money will be placed in the council’s general fund, and at the cabinet meeting there was little optimism regarding future pressures.

Cllr Stenner told colleagues the financial outlook “remains extremely challenging”, and amid the wider economic backdrop the council has predicted an “anticipated savings requirement” of more than £48 million over the next two financial years.

Chris Morgan, the cabinet member for waste, leisure and green spaces, asked whether the underspend was a “reflection of hardships that we face over the next two years”.

Finance officer Steve Harris said: “Yes it is – we’re seeing shrinking settlements, lots of growth pressures coming through, we’ve already talked about unprecedented levels of inflation [and] the current economic outlook.”

He added: “I think the outturn, even though we managed to budget well in 2022/23, does signify that things are getting much tougher, we’re all fully aware of the challenges we face going forward”.