The national financial picture is bleak. We know that, like every other council in the country, we all face huge cuts in our funding from the Government.

In Somerset, the situation is even more dire. We have a debt level at this county council of more than £350 million, with projections that will reach £400m before it can come down.

Servicing debt is our second biggest bill, Not fixing roads. Not looking after vulnerable people. Not improving schools – but debt. This can't go on. Change is essential and we are bringing a new approach to what we do and how we do it at this council. We are going to have to stop some of our services and we have to be a smaller and better-run authority. Smaller, leaner, more efficient. Despite the tough times ahead, I don't want to lose sight of the fact that there are a lot of great people at this council doing a lot of great work. We have fixed 19,000 potholes since the February storms. We have taken down nearly 400 signs cluttering our roads. An unannounced inspection of children's social workers last week gave us an excellent and really positive health check. Across Somerset our GCSE results are up five per cent.

But my opening sentence outlined the bleak national picture, we know we will not be able to carry on doing all we do now. We are counting on private enterprise and hard work to get us all out of this fix. That's why we've made the economy our priority so I'd like to make some positive announcements.

A zero per cent increase in council tax.

There's only a limited amount any council can do to encourage enterprise and businesses but here in Somerset we are committed to do whatever we can. Here's an example from last week; we announced our help for Snazaroo, a flagship manufacturer in Minehead with a worldwide reputation for face and body paints. I'm delighted that this expanding company was able to use some of our business space to remain in Somerset when it had looked like it might have to move. That's 50+ jobs saved.

I'm delighted to be able to highlight a decision that will pull public and private sector together to encourage more small firms in Somerset. The council has a stake in around 70 business start-up spaces on industrial estates around the county – worth several million pounds. For the first time we will now stop acting as just landlords, and instead ask a private company to run "end-to-end" support.

Now for the really tough decisions that we have had to make. So how big will the cuts have to be? We're working on an assumption that our main government grant will be cut by between 25 and 40 per cent.

We have boiled it down to one simple fact: We anticipate the gap between what we currently spend and what we get from government grants and council tax will be £75m over the next three years. A gap between our spending and our income of around £75m. At the same time we also have increasing demands on our services:

An ageing population: More vulnerable people living for longer and with more complex – which also equals more expensive – needs.

Stricter national regulations following cases such as Baby P that quite rightly have a direct impact on the numbers of children in care.

It all adds up and up. We are currently dealing with a £10m cut in funding this financial year.

The Government will clarify our position with its spending review on October 20 and our budget will be presented to full council early next year – but one thing is clear: Much less money, much more demand. It will inevitably mean cuts – we just can't afford to carry on as we are. These cuts will impact on everyone and we will be working with local communities, voluntary groups, charities and other public sector partners to see how we can continue to deliver services locally. If other organisations or local people can get involved in running some services they feel are important and want to keep – we will listen.

Our current workforce – excluding schools – stands at around 6,500. We expect this to fall to close to 5,000 over the next three years.

How are we going to achieve this? We've already carried out a trawl for voluntary redundancies with more than 1,000 people interested, and we are working through that process now. We've had a recruitment freeze in place for over a year that has delivered more than £1.5m in savings to date.

Sadly though, the scale of these cuts means that there will have to be some compulsory redundancies.We will try to keep these to a minimum but inevitably there will be pain as a result of these decisions.

So what can we stop doing? I can tell you now that we are stopping the vast majority of our planned building projects. We just can't go on borrowing, putting everything on the tab.We have had to look again at all projects:

One of these projects is the new school that had been planned for Yeovil, amalgamating Grass Royal, Reckleford and Pen Mill at a cost of £8m. It's unlikely that the project can go ahead now.

We had hoped to be part of a £6m scheme to pedestrianise Taunton Town Centre – we can't afford this now. We hope to revisit this if developer money is available.

We had hoped to buy the doctor's surgery in Castle Cary to create a new children's centre there. This is now unlikely to go ahead. A saving of £300k of public money.

We have to work out what we can afford – and what we cannot. But what is clear is there is no more borrowing. Everything this council does is being reviewed. Does it really need to be done? Does it provide value for money? Wherever possible we want to put our residents at the heart of these important decisions. One of these areas is our library service. We are about to hold a series of focus groups to discuss ways in which we could deliver the service differently. We are keen to see if voluntary groups, communities and charities can get involved and help us with the running of some of our libraries.

For local people who are interested, these are exciting opportunities and we want to make it easy for people to come forward and talk to us about how to get involved. I can tell you that some libraries will be temporarily reducing their hours from next month because of the financial squeeze. These are Priorswood, Minehead, Porlock, Watchet, Castle Cary and Wincanton – and Bruton library will be temporarily closed.

Arts Grants – I anticipate that we will have to make major cuts to our arts budget although no decision has been formally taken as yet. However, we are likely to move away from just giving grants to groups across the county but instead look to focus our financial help on specific projects.

One of the most heartfelt debates we have had over the past few months has been the decision to review our holding of county farms. We promised a farm-by-farm review published the first results in July, and showed that we had listened. We have now completed the latest phase of that review and of the remaining 60 farms it is clear that the recommendation will be that we should retain around one third. Of the other two-thirds that the review concludes we could sell, the majority of tenants have expressed an interest in purchasing some or all of the farm holding. The next phase of the review will see detailed consultation with the farmers.

I'm also interesting in talks we have been having with larger farming concerns such as Crown Estates to gauge their interest in buying the remainder. My personal view is that there is an extremely good chance that the vast majority of the county farms will remain as farms. It's very early days but we are working hard on this.