A series of historic “inappropriate approaches” to budgeting are behind the decision to issue a second section 114 notice within six months at Northamptonshire CC.
Cuts to services for vulnerable children, young people and adults are all being mooted as the county council seeks to find between £60m and £70m of in-year savings on a net revenue budget of £441m for 2018-19. An “equally stark” forecast for 2019-20 has also been predicted with an estimation that a further £54m savings will be required.
The official section 114 notice, issued today by chief finance officer Mark McLaughlin, pointed to advisory notices from external auditor KPMG as examples of financial mismanagement at the council. The first notice in February pointed out that the council’s initial budget proposals for 2018-19 were unlawful while the second in May argued that the council had failed to deliver a balanced budget for the previous financial year. LGC understands that the council challenged the auditor on this point and has yet to receive a final decision from KPMG on the issue.
While Mr McLaughlin’s notice said “there was the possibility that, subject to audit, the county council would have avoided an unprecedented negative general fund balance” in 2017-18 he added he had “continued to caution that this position is at risk, and it is a risk largely because of the need to account in the present day for poor or ill-advised decisions taken in the past” specifically between 2014-15 and 2017-18.
“In terms of the approach to financial decision-making that had been adopted by the county council, it was clear that this was factually wrong, ill-informed, out of step with other public sector organisations, and inappropriate for informing the decisions made by a large public sector organisation with such serious responsibilities,” said Mr McLaughlin.
According to Mr McLaughlin, there were five main reasons why the council has been forced to issue its second 114 notice since 2 February. These “inappropriate approaches” were:
- The use of reserves for “day-to-day expenditure rather than for unexpected events”
- Maximising use of capital receipts “in the expectation of only light-touch inspection”
- “Knowingly adopting” unachievable savings as part of its budgets
- Accepting the costs of demand-led services “could not be controlled in any meaningful way”
- Operating on the assumption that a future review of local government finance would result in “fairer funding”, meaning that difficult decisions could be “put off”.
Due to its financial pressures and the “completely insupportable” approach to financial management historically, the county council is likely to only deliver core statutory services for the “foreseeable future”, the section 114 notice said.
The county council currently has “no financial resilience”, it added.
“At this stage I am not able to offer remedies,” Mr McLaughlin wrote in the notice. “There are no ways out of this financial situation other than a willingness on the part of the county council to take the decisions that will be required to achieve a lawful outturn in 2018-19 and to set a lawful budget in 2019-20.”
On the subject of potential savings, Mr McLaughlin said the council would look at all costs that “can be safely and legitimately minimised”.
“This will have to go beyond cuts to staff pay and staff numbers to include all services including those to and in respect of vulnerable children, young people and adults. “All accounting adjustments and one-off interventions have now been exhausted,” he said.
Mr McLaughlin joined Northamptonshire two months before the council issued its first section 114 notice in February.
Overall control of the council’s finances was handed over to government-appointed commissioners Tony McArdle and Brian Roberts in May following a highly critical inspection by Max Caller.