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County accused of lack of candour over '£60m black hole' report

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Worcestershire CC has been accused of burying a report by independent experts which called for it to take “urgent” financial action to avoid a budget black hole of £60m in two years’ time.

An investigation by the Bureau of Investigative Journalism for LGC has revealed the contents of a Chartered Institute of Public Finance & Accountancy financial resilience review of the council which raises yet more concern for the finances of the county sector.

The review of Worcestershire’s medium-term financial plan, undertaken in June last year, described the council’s future “transformation savings” as being “overly optimistic”. At the time, the council was said to be in danger of being £10.2m short of its £21.3m cost-cutting target for 2017-18.

Cipfa questioned why Worcestershire’s forecast increase in demand for services was 2.5 times larger than its expected growth in resources. Cipfa warned the council faced an additional £26.4m gap in 2018-19, rising to £60.1m by 2020-21.

The review criticised the county’s financial planning as “overly optimistic”, “counter-intuitive” and in need of “radical overhaul”.

However, the council today insisted to LGC that it was in a “robust financial position” and had set “a balanced budget for 2018-19”.

Papers prepared for a cabinet meeting this week forecast an “overall financial pressure of £6.3m” by the end of 2017-18. It will spend £7.5m more than budgeted on children’s care placements.

They state: “The council will use a number of one off measures to balance the 2017-18 financial year, including using earmarked reserves, capitalisation of costs, use of specific grants and better care fund monies, and reviewing the minimum revenue provision accounting policy. However, the underlying cost pressure and use of specific grants and other reserves has significantly increased since previous financial years.”

According to official figures, the council – which counts housing and communities secretary Sajid Javid as one of its MPs – has had a 47% drop in its usable reserves in the last five years. It has also regularly overspent in children services over the past three years. Following a damning Ofsted report last year, it was told it would be stripped of direct control of children’s services, with its cabinet deciding two weeks ago to put them into a council-owned company.

Shadow housing and communities secretary Andrew Gwynne said: “A Conservative council [Northamptonshire CC] has gone bankrupt and now this mess is happening in Worcestershire, the secretary of state’s own council. How much longer can Sajid Javid ignore this crisis?”

“This government’s failings have forced many authorities to struggle to maintain basic services after their funding was cut to the bone.”

Cipfa’s findings, obtained by The Bureau via the Freedom of Information Act, were not shared with all councillors or the wider public ahead of the 2018-19 budget vote earlier this year.

Peter McDonald, leader of the council’s Labour opposition group, said neither he nor other Labour councillors had knowledge of the report before being contacted by The Bureau.

“It’s absolutely diabolical,” he said. “At a time when we are having services cut year-on-year, we’re seeing hundreds of people dismissed from their jobs and work has been outsourced to private companies, this report was made and we were never informed of what it said.

“Had we been then we would have been making the correct noises to bring it to the attention of the ratepayers just how bad the financial position of the council is.”

‘Radical overhaul’

In June 2017 the council paid more than £30,000 for Cipfa to conduct a review of its medium-term financial plan and cost-cutting strategy. The institute’s then director of local government Sean Nolan then gave a presentation to what the council described as “an internal meeting of cabinet and strategic leadership team”. Mr Nolan’s presentation was the document provided to The Bureau.

In addition to questioning Worcestershire’s transformation savings, Cipfa said plans to keep council tax increases below the maximum possible were “counter-intuitive”, given the situation facing the authority.

Worcestershire has since set its budget for the current financial year, including a total council tax increase of 4.94% and spending ‘reforms’ totalling £31.6m – the equivalent of almost 10% of its current budget.

No sense of urgency

Cipfa also expressed concerns about attitude within Worcestershire’s leadership team, calling for a “sense of urgency appropriate to the real challenge”. This echoed the problems at Northamptonshire, where an independent inspection concluded in March that the council’s financial crisis had been caused by the complacency of senior officers and said “living within budget constraints is not part of the culture”.

The Worcestershire report made a number of recommendations including a “radical overhaul” of the savings programme and that the council needed to “urgently consider short term initiatives” such as a targeted staffing freeze. The Bureau asked the council whether the latter measure was introduced but did not receive a response.

The inspectors called for the council’s then chief financial officer Sean Pearce to be given more support because it was “simply not possible” for him to deliver the required changes. In July 2017, a month after the review he commissioned, Mr Pearce left for a new job at the West Midlands CA.

Cipfa also suggested the council needed to agree a “nowhere to run, nowhere to hide” financial scenario at its next cabinet meeting in June 2017. But the matter was never raised in public. The revised budget gap was instead discussed at an “internal meeting”, the council told the Bureau this week.

Cllr McDonald said: “We have a council that is refusing to tell people the truth, with the truth being the finances of the county are a serious mess and things will only get worse.”

“I think the council needs to open up, tell the public the true position of its finances and call the government commissioners in.”

Worcestershire said it had acted on Cipfa’s findings by investing an additional £10.5m in children’s social care and £7.8m in adult social care this year.

A council spokesperson confirmed the independent financial resilience review had been commissioned to “inform our budget planning”.

“The approach taken by the council was in line with the Cipfa advice and also helped us plan to shape how we moved forward with our medium term financial plan,” they said.

“Despite the budgetary pressures, we are in a robust financial position and a balanced budget for 2018-19 was approved by councillors in February.”

How are councils independently reviewed?

A financial resilience review is a service by which local authorities pay for Cipfa, or an equivalent organisation, to independently assess the strengths and weakness of their finances.

The process involves an onsite assessment by a small team of experts who test the council’s financial projections and money-saving proposals, as well as short and medium-term prospects.

The findings are then provided to senior council officers in the form of a report or presentation. It is up to each authority whether this report is published.

Cipfa declined to reveal how many reviews it has undertaken, or whether the requests have increased, on the grounds of commercial confidentiality.

The Bureau submitted freedom of information requests to all 353 local authorities in England asking about reviews undertaken in the last five years.

So far five local authorities have confirmed they commissioned Cipfa to undertake a review since November 2016: Torbay Council, Lambeth LBC, South Ribble BC and Worcestershire and Surrey CCs. The bureau’s coverage of the latter council’s report made national headlines.

In addition, Warrington BC said it had requested three such reviews from Moody’s Public Sector Europe since 2015. It declined to release the reports under FOI do to their “commercially sensitive nature”. In May 2017, Moody’s downgraded the council two notches on its credit rating due to its “risk appetite” and “projected increased debt burden”.

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Readers' comments (2)

  • For the sake of completeness, you might have observed that the Labour group, under Peter MacDonald, has voted for no council tax increase at all for the last two years. Somewhat at odds with Mr MacDonald's concern about us not having enough money...

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  • The Greens (of which I am one) and Liberal Democrats have jointly put forward budget amendments this year and last calling for the full increase in council tax, but these were rejected. Based on the evidence from CIPFA, this was clearly a mistake. There is little left to cut, whilst the pressures from children's services and adult care are increasing.

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