Somerset Council could still declare bankruptcy within the next 12 months despite managing to pass a balanced budget last week, it has been warned.
As Burnham-On-Sea.com reported here, councillors set a balanced budget for the next year as they attempted to plug a £100m budget gap through a council tax rise, the use of reserves, extensive savings and selling off assets.
At last week’s budget-setting meeting, former Somerset County Council leader David Fothergill faced numerous interruptions as he laid the blame for the budget crisis at the feet of the governing Liberal Democrats, describing their time in office to date as “two years of incompetence and mismanagement.”
However, Lib Dem leader Bill Revans, pictured, fired back that the national government had “moved the goalposts” and the council’s crisis was “a legacy of 13 years of Conservative control” of the previous county council.
After hours of debate, the council managed to pass its revenue budget – but with a stark warning from officers that without drastic reforms from government, it would have little choice but to call in commissioners by April 2025.
The council’s Chief Financial Officer Jason Vaughan warned that the council is “at the front of the queue of those authorities in financial distress.”
The budget’s approval prevented then issuing of a Section 114 notice and bankruptcy, a prospect which would result in unelected commissioners appointed to decimate the council’s vital services in order to make extreme savings.
The budget was voted through by 52 votes to nine, with 31 abstentions.
One in five councils in England and Wales say they fear the prospect of issuing a Section 114 notice of bankruptcy, while S114 notices have already been issued for councils in Nottingham, Woking, Thurrock, Croydon and Birmingham since November 2022.
Bill Revans said councillors had faced ‘a stark choice’ at last week’s meeting and he said Labour’s decision to vote against the budget while ‘offering no alternatives’ represented ‘a lack of responsibility’.
“The choice for Somerset Council was stark: set a balanced budget or declare a S114 notice – bankruptcy – and have unelected government commissioners appointed to run the council,” Cllr Revans said.
“While the Liberal Democrat administration is working hard to keep Somerset Council going, the Labour group offered no alternatives and are taking no responsibility to help get through this. At a time when Somerset voices need to unite together, it’s disappointing some are seeking to divide us.”
Cllr Claire Sully, the Liberal Democrat Parliamentary Candidate for Bridgwater, said she believes Labour’s decision to oppose the ‘life-saving’ budget was reckless. “After the vote, it is clear that Somerset Labour do not have the best interests of our residents in mind,” she claimed.
Somerset Council’s steps to stay solvent:
While the in-year overspend will be plugged using existing reserves, the council is taking a four-pronged approach to plugging the gap for the 2024/25 financial year – namely:
- Raising council tax by the maximum amount
- Selling off assets and using the proceeds to fund day-to-day services
- Cutting front-line services and reducing back-room staff
- Using some of its remaining reserves
The government provided an additional £5m of funding in late-January – but this was barely enough to cover a rise in wages paid to care providers out of the council’s adult social care budget, notes the local democracy reporting service.
Deputy leader Liz Leyshon said: “More government support will be needed soon to prevent the wholesale failure of local authorities.”
Council to sell off assets to raise funds
The council holds sizeable amounts of land, property and other assets as a result of five local authorities being brought together.
The council intends to sell off all the commercial investments it inherited from the four district councils, with officers estimating that this could raise between £15m and £20m by April 2025.
Mr Vaughan said in December that 16 sites had been sold in the financial year to date, and a further 74 sites had been identified as surplus and were in the process of being sold off.
Normally, capital receipts generated from the sale of land, assets and property cannot be used for revenue spending (i.e. the day-to-day delivery of services).
To get around this, the council has applied to DLUHC for a ‘capitalisation direction’, asking for permission to use up to £36.9m of capital receipts to help plug the budget gap.
While the council has now set its budget, it won’t find out whether DLUHC has granted permission to do this until the end of March – and if the government says no, the council will have to use even more of its reserves than intended or borrow the money.
Councillor Mike Hewitson, who chairs the audit committee, said the sale of assets would “buy us some time” to put a transformation programme into action.
The transformation programme will lead to at least 1,000 job losses as the council seeks to reduce duplication and streamline the delivery of services – though the cost of redundancies could prove eye-watering.
Mr Hewitson warned, however, that “an asset can only be sold once”, adding: “Without significant change, the likelihood of us having to issue a Section 114 notice remains high.”
Services to be cut to save money:
More than £35m of savings were originally proposed – including the closure of five household waste recycling centres (to save £963,000), keeping the Octagon Theatre in Yeovil closed (£174,000), installing no new play equipment for a year (£168,000) and shutting the tourism offices in Taunton and Yeovil (£167,000).
Since these plans were published, town and parish councils – who have no cap on increasing their precepts – have stepped forward to take charge of some local services.
Yeovil Town Council has stepped in to prevent the closure of the Yeovil Recreation Centre (known locally as Mudford Rec), take over the running of Yeovil Country Park and have committed money in principle to running the Octagon Theatre if the stalled regeneration of the venue comes forward.
Bridgwater Town Council has taken similar steps, committing to running more of the town’s green spaces and taking over the Northgate Docks after the completion of regeneration work as part of the Bridgwater town deal.
Taunton Town Council has increased its share of council tax by 200 per cent for the average ratepayer, allowing it to improve the public toilets and keep valued green spaces like Vivary Park in an operational condition.
Other proposals, such as the loss of funding for RNLI lifeguards at Burnham-On-Sea, have been removed from the budget proposals following lobbying from local councillors – and parliamentary candidate Claire Sully.
Other services will still be cut back, with five of the 16 household waste recycling centres expected to close in the coming months, school crossing patrols to be cut where the parish or town councils haven’t stepped in, and less money for highway maintenance (including verge cutting).
Car parking charges are also expected to rise across the county, along with other fees currently charged by the local authority.
Council set to dip into its reserves:
To plug the remainder of the budget gap, the council will use £36.8m of its general reserves – essentially the council’s savings which have been either built up over time or inherited from the abolition of the five previous councils.
The government advises councils to keep general reserves of between five and ten per cent of their annual revenue budget – which equates to between £30m and £60m in Somerset’s case.
Mr Vaughan said using this much reserves still left the council with more than the minimum amount permissible.
However, reserves can only be used once – meaning the council now has much less room for manoeuvre when it has to set its next budget in February 2025.
Council’s next steps:
The council’s corporate and resources scrutiny committee will review the business case for the transformation programme when it meets on March 7th, with the committee providing feedback to the executive committee ahead of the programme being implemented.
If the government does not agree to the capitalisation direction by the end of March, an emergency full council may be needed to approve the use of further reserves or borrowing to plug the gap.
Whenever the next general election is called, the next 12 months promise to be tense and precarious for public services – and whoever wins the election will have to make significant changes very quickly to prevent an utter collapse of local councils.
