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It's time to be candid about financial strife

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Commentary on another county’s financial problems

“We dispute the data, the analysis and the speculation contained within this report.”

So said an outraged Somerset CC in a February complaint to LGC after we named the county as being one of two councils that “most resemble Northamptonshire [CC]’s position with regards to the actual level of reserves as a percentage of net revenue expenditure and the changes to their usable reserves in the past two years.” Our story was based on Pixel Financial Management’s analysis of councils’ reserve levels.

“This is not ‘burning through reserves’, nor is it ‘rapidly falling reserves’ as your report suggests. It is spending earmarked reserves on projects they were supposed to deliver,” Somerset added at the time.

Three months on, quite a bit has changed, although it would be fair to highlight that the county has so far not followed Northamptonshire in issuing a section 114 notice.

Earlier this month, apparently out of the blue, Somerset’s leader David Fothergill (Con) called for reorganisation in the county in a bid to save up to £28m a year.

“At a time of unprecedented financial pressures on all councils we are all looking at different ways to be more efficient, make savings and protect the frontline services that our residents value so much,” he said.

Now, the publication of a Local Government Association peer review into the county, written by a team including members with the calibre of North Yorkshire CC chief executive Richard Flinton and Essex CC leader David Finch (Con), casts light on Somerset’s financial position.

While the document notes improvements have been made since the last such review in 2014 - it says challenges are being taken seriously and praises chief executive Patrick Flaherty whose impact “in leading the council through this recent period of change is clear for all to see” - it clearly designates finance as the authority’s number one difficulty.

The review highlights a forecast overspend of £14.5m in children’s social care in 2017-18, on top of overspends in the previous two years. This had resulted in a “very challenging” financial position for a council with an estimated £11.3m of general reserves at the start of 2018-19, along with a £7m contingency fund.

There had been “a recurring pattern of using reserves to fund overspends” in recent years, the document states, urging “much stronger budgetary control… within the overspending services”.

“This would suggest that if the level of overspending seen in 2017-18 continues in 2018-19, [Somerset CC] will only have sufficient resources to balance its budget for one more year,” the report says. “Furthermore, the level of earmarked reserves was only £8.1m at the start of 2017-18, leaving little flexibility if needed to support the budget.”

The report also says: “Given the current position, including the low level of reserves, it is imperative that current and future saving programmes are delivered in full and on time.”

The review concludes: “After four days working with the council we felt that SCC can meet its challenges and build upon its strengths to become a sustainable council. However, to confirm this, it must address the challenges and recommendations within this report… [including] an injection of pace given the immediacy of the financial challenges in particular…” The corollary is surely that if the council fails to improve quickly then it is unsustainable.

LGC has revealed how other councils have failed to be open about the scale of their financial challenge, reporting recently how Worcestershire CC sat on a Chartered Institute of Public Finance & Accountancy financial resilience review from last year, showing a £60.1m funding gap by 2020-21.

Some might argue Somerset is showing a similar lack of transparency. While the report is on its website, the press release about it is entitled: “Peer review praises revitalised and ambitious County Council”.

The council’s story starts: “Local government experts have recognised significant improvements and commended management and leadership at Somerset County Council.”

It is only in paragraph seven that it states: “The report also highlights the need for the authority to address its financial challenges, notably overspending in children’s service, and ensure that more savings are fully achieved.”

While the story is not incorrect, it is hard to believe that a more relevant news angle for the residents of Somerset might be how the body responsible for providing their social care and children’s services is doomed unless it changes course rapidly.

The time has come for struggling councils to be open about their pressures. Spinning will only work for a limited period of time.

As Cllr Fothergill notes in the third paragraph of his statement (after two paragraphs of delight about “the positives”): “The financial picture is, as everyone knows, challenging for all local authorities – no surprise given the huge reductions in funding and increased demand for our services.”

The financial deficiencies of struggling councils will emerge soon enough anyway. It is better to be upfront about them (especially as there are no elections for nearly another year). From a political perspective, openness puts greater pressure on the government to sort out the “broken” (as Somerset put it today) council finance system, rather than waiting for the truth to emerge about your council’s financial position and inevitably receiving a similar level of vitriol to Northamptonshire.

We should praise as beacons of openness East Sussex CC chief executive Becky Shaw, who warned of an impending “minimum service offer” by 2020-21 without extra resources and the Lincolnshire CC duo of leader Martin Hill (Con) and then chief executive Tony McArdle who respectively warned that “things will break” and that the council would “run out of money” in two years.

Perhaps appropriately Mr McArdle is now lead commissioner at Northamptonshire sorting out the mess of a council which failed to address its financial woes.

Nick Golding, editor

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