Northamptonshire CC is planning to dip into earmarked reserves as councillors and officers struggle “desperately” to set a balanced budget for 2016-17 and beyond.
Source: Les Haines
Over the past year the council has been dogged by persistent rumours it is about to file a section 114 notice indicating it cannot set a balanced budget.
Speaking to LGC this week, chief executive Paul Blantern said next year’s budget would be “extremely difficult” but the council was not at that point yet.
He said the council planned to set a binding four-year budget which would include the use of earmarked reserves to allow the council to “get out the other side” of its current financial difficulties.
He added: “If we don’t believe we can get out of the other side then quite rightly that would be when we were having to issue a 114 notice. But at the moment… we’re going along that precipice.”
The reserves in question are held to “smooth” the payment of a school private finance initiative deal that has higher repayments in its later years. The plan is that they could be replenished once the council is in a healthier financial position in the future.
The council is also in the middle of a major reorganisation which it is hoped this will release significant savings as the majority of staff ‘spin out’ to form mutuals and social enterprises from which the council will then commission services.
Mr Blantern (pictured) said new freedoms to use capital receipts to fund reform, announced alongside the provisional local government finance settlement last month, would also help the council address its “structural deficit” and move into a “more sustainable position by years three and four” of the settlement.
At the end of December the council was reporting an overspend of £8.7m on a gross revenue budget of £738m.
In a sign of the scale of Northamptonshire’s financial challenge, Mr Blantern told LGC this position must be recovered by the end of the year as if the council used any more of its £12m general reserve in 2015-16 then it would be unable to set a balanced budget over the next four years.
Paul Dossett, head of local government at auditors Grant Thornton UK LLP, told LGC Northamptonshire’s move was a sign of the “rather desperate situation” many councils were in.
He said: “In principle general fund should be used to cover shocks and earmarked reserves should be used for the purpose they were intended. If you use either to balance the books you are storing up problems for the future.”
Asked whether it would have been more appropriate for Northamptonshire to issue a section 114 notice than plan to make use of earmarked reserves, Mr Dossett said that was a “difficult judgement” for the section 151 officer and chief executive to make.
“Clearly unless they find a way of replenishing those reserves or making more savings in future years then that’s what they could do.”
Section 114 - still relevant?
The chief executive of one of the most financially challenged councils in the country has questioned whether section 114 of the local government act is still relevant.
Once a council issues a notice under section 114 of the 1988 Local Government Finance Act it is prohibited from entering into new agreements that incur expenditure and must strive to set a balanced budget.
Speaking to LGC Paul Blantern pointed out that the statutory roles of directors of adults and children’s services did not exist at the time the legislation was introduced.
He said: “If we issued a section 114 notice they would not be able to carry out their legal duties. Are we really expected not to place a child in care as a result?”
He said although he supported the principle that organisations should not run deficit budgets, the original legislation was designed for a time of “loony councillors” disregarding officers advice, an era which had “long since passed”.
“If we were to issue one, what would that say to our council? You have got 28 days to think about a new budget when they’ve been trying desperately to wrestle with a structural deficit due to growth for the last 18 months to two years,” he said.
“All it would be would be an absolute signal from local to central government that something needs to happen because a well run council can’t run itself.”
However, Rob Whiteman, chief executive of the Chartered Institute of Public Finance & Accountancy, disputed Mr Blantern’s claim that a section 114 notice would conflict with the statutory duties of other senior officers.
He said: “When a section 114 notice is issued it freezes all expenditure but the director of finance will put in place arrangements under the notice for essential expenditure to continue.”
He told LGC this would include placing a child in care.