Somerset Council is close to insolvency
Papers published today for the Somerset Council Audit Committee contain some worrying documents. Foremost among them is the letter from Grant Thornton, the council’s external auditor.
Barrie Morris writes that: “Discussions with the Section 151 Officer (like a finance director – for Somerset Council that is Jason Vaughan) confirm the risk that a Section 114 Notice could be required as soon as February 2024.” A section 114 notice is the local council equivalent of a company declaring insolvency.
A council’s chief financial officer (s151 officer) has a statutory duty to issue a ‘section 114 notice’ if they believe the council will be unable to meet its expenditure commitments from its income. The chief financial officer does not need councillors’ consent to issue this notice.
A section 114 notice means the council cannot make new spending commitments and must meet within 21 days to discuss what to do next.
Grant Thornton note that: “The Section 151 Officer wrote to the Department for Levelling Up, Housing and Communities on 26 September 2023 to highlight the financial challenges that the Council faces and the prospect of issuing a Section 114 Notice unless decisive actions are taken. At this time, the forecast overspend for 2023/24 had increased to £30m and the budget gap for 2024/25 increased to £80m.”
They go on to note that the prudent range for reserves for Somerset Council would be between £30m and £50m.
The Council currently has a General Fund Balance of £50m and Earmarked Reserves of £105m. However they suggest that unless the 2023/24 overspend and 2024/25 budget gap are rapidly reduced these reserves won’t be enough.
No doubt political parties at the council will initiate a blame game. However the auditors themselves note that as the council was only created on 1 April 2023 it has not had time to manage its resources. And they hint but do not spell out, the new council has been under resourced from day 1. A fact that central government must be held to account for.
However they are unambiguous in warning Somerset Council to take rapid action to cut the overspend. If the council does issue a section 114 notice, it will have severe consequences for residents. All but statutory spending may have to be cut and many of the current programs being pushed by the council will have to be abandoned.
Not to mention a 15% council tax rise raised by Whitehall appointed commissioners in other insolvent councils.
The new council inherited an overspend of £23.4m from the old County Council, while the old District councils contributed £4.7m of underspends plus all of their reserves (not quantified).
We were promised savings of £18m from the five councils going into one unitary council. They come mainly from reducing management overheads and either selling or renting out surplus property to generate cash.
Why is there no update for the progress of the promised savings from reducing management overheads and rationalising the extensive property portfolio?
More worrying is the financial position worsening by £4.2m in just one month. That doesn’t generate confidence that overspends can be tackled and outstanding savings realised going forward.
Let’s hope this shocking report shakes the new council into urgent and effective action.
My sister works for the Council and says she says budget holders haven’t been told how much budget they have or been given any budget reports to monitor for 6 months, so has no idea how robust the financial forecasting can be.
The promised unitary savings haven’t materialised. Also the £000s million of commercial investments made by the former districts (predominantly Lib Dem’s) have failed to deliver any income. In fact they are not investments but now liabilities, costing the council hundreds of thousands of pounds. An absolute disaster.
The council can’t even get a grip of how many vacant posts they have. Surely it is a basic part of management to know how many staff and roles you have.
Added to this , some senior managers are being secretly paid off (outside of the redundancy scheme) with no public scrutiny, and replaced with temporary expensive agency managers.
I think David has summed up what I’ve just logged on to comment. Lost all the Districts, and now potentially insolvent? Where was the due diligence before committing to unitary?
A sinister reason for Council underfunding by Government is not austerity but removal of the ability for discretionary spending, which is the whole point of local autonomy.
This was always going to happen. The LibDems (having only 12 seats in the former Somerset County Council) were convinced the Conservatives, who supported the idea of a Unitary Authority, would win the new Council easily and believed that was why they supported it. The Lib/dems ran 3 of the former District Councils so they deliberately started wasting/spending their reserves so the new Conservative ran Council would end up with a Unitary going bankrupt. The failure in the Lib/dems thinking was that they won control of the Unitary Council not the Conservatives so they are now facing a problem caused by themselves and unfortunately the residents of Somerset will ultimately have to pay for the Lib/dems political shenanigans.
PS: Grant Thornton couldn’t sign off the accounts for years at Lib/dem run South Somerset District Council, the same people are now running the finances at the Unitary Authority.
Seriously, are the LibDems clever (or Machiavellian) enough to be able to think that far ahead?
Look at the shambles that the SSDC LibDems have made of “Refresh”, Westlands Centre and property/battery investments
Yes they are, £28 million budgeted for The Octagon Theatre alone and it’s always relied on taxpayers money. As you said, the failed way over budget Yeovil depress program. Chard regeneration not to mention the failed Wincanton regeneration where a small fortune was spent but absolutely nothing delivered. Devious nasty people and Somerset ratepayers will suffer.
I should have included the Transformation at SSDC as well – look at how many took voluntary redundancy leaving the council short on capable decision makers!