Somerset Council has been told that it must take action to reduce its multi-million pound overspend or it will face bankruptcy.
The authority has an estimated budget gap of £80m for 2024/25, with a further £50m forecast for 2025/26.
The warning from auditors comes just six months after the unitary council was formed in April.
Deputy leader Liz Leyshon said: “The projected overspend needs to be reduced significantly.”
Somerset Council was formed by the merger of Mendip, Sedgemoor, Somerset West & Taunton, South Somerset District Councils and Somerset County Council in a move that had meant to save about £18m a year.
However, budget forecasts show a large overspend which is expected to grow unless major savings are made.
Auditors have stopped short of taking formal action but said they need to see significant changes in the forecasts if the Liberal Democrat-run Somerset Council is to avoid being issued with a Section 114 notice, which effectively means bankruptcy.
Ms Leyshon said she “understood people’s disappointment” at the news coming so soon after the new council was formed.
“We could not have gone into local government reorganisation at a worse possible time,” she said.
“When business cases were written we were in a different place. If we can’t get the overspend down in this year then we will not be able to set a budget for next year. We need the government to take note and we need to do our own work in reducing the overspend.”
“We will have some draw on reserves this year but we cannot cover overspend by pulling on reserves, you only spend your reserves once. We have delivered savings when we set the budget for the current year in February but the pressures are much, much greater and the savings needed are on the same scale – much greater.”
The deputy leader warned that Somerset Council would lose the ability to commit to new spending and take decisions if it was issued with a Section 114 notice.
She added it “is the equivalent of bankruptcy but no council closes down so its not the same as a company going bankrupt, but the government send in commissioners to run the council.”
“I don’t think anyone in local government can be truly confident about what the future holds.”
Birmingham City Council declared itself effectively bankrupt in September and Cotswold District Council said this week that it must make tough decisions to avoid bankruptcy in the coming years.
Councillor David Fothergill, leader of the opposition Conservatives and former leader of Somerset County Council, said he was disappointed but not surprised and that May’s local elections had not helped with continuity.
“I think after the election there was a loss of momentum, a loss of urgency and the loss of expertise in taking the project forward and I’m afraid that momentum has not been regained now,” he said. “I think a 114 bankruptcy notice is possible in the next couple of years.”
“The way to avoid that is for the leadership and the administration to get a grip of the challenge and to really make some tough decisions because if you don’t do them the council will fail and that will have a devastating impact on the people of Somerset,” he added.
Commenting on the situation, UNISON South West regional secretary Kerry Baigent said: “Persistent government underfunding of core local services, including social care, is having disastrous consequences for councils and the communities they serve.”
“But staff and residents shouldn’t pay the price for ministers’ failings. Council services are already stretched to the limit after 13 years of government cuts and penny-pinching. The spiralling cost of social care has added to Somerset’s financial troubles. The care system is broken, inadequately resourced and letting down absolutely everyone dependent upon it.”
“The government’s abject failure to help mend social care and start the much-needed reforms has been nothing short of a nightmare for local authorities left to pick up the pieces.”
“There’s a crisis in public services. The government has to wake up and intervene with the lifeline of significant extra funding. Several councils have already gone bankrupt, Somerset could be the next and there’ll be many others to follow. UNISON will do all it can to work with the authority to protect jobs and services in the light of this devastating news.”
