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.