Somerset’s budget blackhole

Somerset Council’s finances have looked grim for some months, but the picture suddenly looks far worse.

On 29 August 2023, a press release warned that the viability of the new council was at risk within two years due to the rising costs of social care.

Monthly finance briefings are held for councillors, when we have been told over some months of a budget gap of £100m to be closed over the next three years.

A point of crisis will come if the council cannot set a balanced budget or there is not a plan to control over-spending. The local authority equivalent of bankruptcy is issuing a Section 114 notice, which prevents spending on new commitments and can lead to commissioners being appointed by Government to run services within budget.

New bombshell

A deterioration in the Council’s financial position was reported to Audit Committee on 26 October 2023.

A £100m gap now needs to be closed for next year’s budget (2024/25), with decisions on how to do this needed by next February. If a balanced budget and plan is not agreed to close the gap, then the Finance Director is duty bound to issue a Section 114 notice, which would be an unwelcome option of last resort.

At a scheduled monthly finance briefing on 26 October (on same day and following the Audit meeting), Somerset Councillors were told more about the growing problem and a little on some things that could be done.

During the summer, it had been agreed to review and challenge all assumptions in the council’s financial plan, with an early review of key areas and a 3-year approach to develop options and to balance the budget.

Just a few months later, the dramatic change in the council’s financial position is due to the latest monitoring reports showing that there has been escalating over-spending on this year’s budget and in projections for next year. The biggest contributor is rising costs for residential adult social care. There is a big overspend on children’s services too and smaller overspends on waste and highways. Continuing high levels of inflation and consequent pay awards are other factors.

There are also problems from commercial property investments made by the previous district councils. Rental income from these has been overtaken by the cost of refinancing short-term loans and a fall in property prices. At Somerset West and Taunton Council, I was possibly the only councillor who consistently questioned these investments, due to the risks. I did not support any of the many votes for it and proposed a motion for the programme to be reviewed, which was narrowly lost when the first sign of problems started to emerge.

Emergency efforts are now being made at Somerset Council to address overspending, limit spending, and develop a pipeline of savings options across the council. It is said that the shape and size of the council organisation will have to fundamentally change and there will be a need to reduce the number of people employed. It is clear there will be difficult and painful decisions to be taken ahead.

A council press statement issued on 27 October 2023 provides some further details.

Since then, a financial strategy update has been published, which will be considered by the Executive on 8 November. Proposals include:

Continuing discussions with government.
Challenge sessions for all Service Directors, with an extra focus on adults and children’s services.
Removal of capital schemes that are no longer affordable.
Disposal of the commercial investment portfolio.
A review of earmarked reserves.
Proposals for asset disposals including rationalisation of council offices.

Looking forward, a vision for a sustainable Somerset Council and draft budget for 24/25 are to be proposed in December, when there should also be news on next year’s government funding for local authorities, there will be a council budget update in January, followed by scrutiny of budget proposals which are then decided by full council with Council Tax setting next February. If the budget gap now identified is not closed by then, Somerset will join the growing list of councils to issue a 114 notice.

I will provide updates on this website as the situation develops and budget proposals emerge.

UPDATED: 1 November 2023

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