Budgets fail to solve financial crisis at Somerset Council

Somerset Council has been in a financial crisis since October 2023, with a growing list of cuts and savings being made to bring income and costs into balance. However, a massive budget gap for future years remains.

Transformation and workforce reduction programmes were agreed by the Executive in April 2024, with the initial aim of cutting officer posts by 20-26% (a loss of over 1,000). This restructure has been completed over the last year, starting with an invitation for council officers to apply for voluntary redundancy, then consultation and decisions on a new organisation structure, and finally a compulsory redundancy programme.

The final number of jobs and posts lost remains hard to pin down. It looks to be over 700, with over 200 approved for voluntary redundancy and 555 posts agreed for removal in February 2025, which I voted against as some of the cuts are going too far. In addition, many good officers have simply left for better opportunities elsewhere.

Cuts to the workforce had to be made, but it’s been a difficult and sad time as this has all unfolded. The staff reduction will allow an annual saving to the council of £34m. The number leaving and saving made is twice that planned for Somerset Council to achieve when established as a new unitary council in April 2023.

The new council structure reduces the number of directorates from 7 to 4, which are now: children and family services; adult social care (including housing); community, place and economy (including climate change, planning and transport); and strategy, transformation and resources (including democratic services, finance and public health).

A productivity plan was published in July 2024, which highlights actions that are being taking to improve efficiency and reduce waste at Somerset Council, as well outlining barriers the council faces.

Exceptional financial support and more needed to balance budgets

To set a balanced budget, Somerset Council has needed government approval for exceptional financial support in both 2024/25 (when a Conservative government) and 2025/26 (now Labour).

The government controls Council Tax in England by setting an annual cap on how much it can be increased. For 2024/25, Somerset Council requested an increase in Council Tax of 5% above the cap, which was not agreed and so the council could only increase Council Tax by the cap of 5%. For 2025/26, Somerset Council has been allowed an increase in Council Tax of 2.5% above the cap, so a total of 7.5%. The extra 2.5% will bring in another £9.2m every year to the council.

For both years, Somerset Council has been allowed further exceptional support through what is known as a capitalisation direction, which allows the council to sell assets, such as property, or to borrow funds just to pay day-to-day operating costs during the year. This allows a budget gap to be closed but just moves the same gap on to the next year. Capitalisation only buys time, literally.

In 2024/25, £77m of council costs were allowed to be met by capitalisation, with £37m for operating costs and £40m allowed for transformation and redundancy costs.

In 2025/26, £43m of council costs have been allowed to be met by capitalisation, which will probably be achieved by selling more council property.

The budget for 2024/25 also required savings of £35m to be made through efficiency measures, increased charges and service changes or cuts (detailed in appendix 7 of report to full council on February 2024), as well as using £37m from reserves. The combination of capitalisation, savings and use of reserves allowed a balanced budget to be set, so that income from all sources could cover the council’s expected costs.

However, the council’s Medium-Term Financial Forecast in February 2024 identified a budget gap returning, which was expected to grow to close to £200m over the following five years. The main cause being increasing costs for adults’ and children’s social care.

During 2024/25, additional strict financial control measures were implemented which resulted in an underspend for the year expected to be about £20m. This will allow the use of reserves to be reduced to £19m (from the £37m that had been budgeted).

The government is also allowing £20m of capitalisation costs to be carried forward from 2024/25 into 2025/26 to cover transformation and redundancy costs which have not yet been incurred.

In both 2024/25 and 2025/26, it is expected that the council will be able to sell sufficient property to cover capitalisation costs. Non-operational assets to be sold were approved by the Executive in August 2024, although more may now be needed.

The original on-going savings predicted from merging previous councils to form a unitary Somerset Council were £18.5m, which have been delivered as part of the staff reduction programme and by other non-staff savings.

The latest Medium Term Financial Forecast in March 2025 shows the budget gap again growing to £101m for 2026/27 and rising to £190m in 2029/30.

Savings and funding needed

In January 2025, the council’s external auditors issued two statutory recommendations on the need for detailed savings plans and to rebase the council’s budget to a financially sustainable level.

The council’s Medium Term Financial Strategy makes the same point by stating (5.6): “The scale of the challenge cannot be underestimated and will require the organisation to work seamlessly to develop, design and implement a range of projects and initiatives at pace over the course of the 2025/26 financial year impacting all directorates and service areas.”

The Chief Finance Officer in a report on the budget and the council’s financial viability in the medium term says (para 10): “It is highly likely that the Council will need to rely on further exceptional financial support in 2026/27 and possibly longer to support its transition to an operating model that is financially sustainable.”

These statements make it clear that further savings will still be needed at Somerset Council in future years. However, at present, there are no proposals or reports that identify savings of the scale needed to close future budget gaps.

Savings alone may not be enough. As concluded in another report by the council’s chief finance officer (16.10): significant additional savings, funding and Council Tax will be required so that the council can balance the budget in future years.”

Funding Reform and Council Tax

It has been apparent for some years that council funding in the UK has been reduced while demand for services and costs has been increasing.

In addition, Council Tax does not provide a fair level of funding to Somerset.

The 2021 census found that 25.2% of Somerset’s population is over the age of 65 compared to 18.5% nationally. This is projected to grow to 32.8% by 2040, which increases demand for adult social care.

Somerset also has a lower proportion of working age people (58% compared to 63% nationally) and higher than average levels of deprivation.

As a rural authority, Somerset has a greater distance of roads to maintain and to travel to provide services, like recycling and refuse collections, which further adds to council costs.

It is hoped these issues will be addressed as the government is finally due to progress a Fair Funding Review for local government and has committed to providing a three-year financial settlement from 2026/27. Although, signs may not be promising for Somerset, as so far, the new government has redistributed some funding from rural areas to urban and metropolitan areas with the highest levels of deprivation.

The government is also reviewing social care and special educational needs and disabilities (SEND) during the term of the current parliament. These reviews may deliver extra funding or changes that will help Somerset Council to close future budget gaps, but there is little sign that this will occur in time for budget setting in 2026/27 or even 2027/28.

The best hope is that there will soon be reform of local government finance that provides greater funding to councils or removes (or lessens) the burden of escalating social care and SEND costs. However, any new funding may not be big enough or quick enough to sufficiently help Somerset Council, especially over the next 2-3 years.

As the council has another £100m budget gap expected for 2026/27, rapid work on identifying further savings is therefore essential. There may still be broadly acceptable savings that could be achieved, but its also unlikely these could be big enough to be sufficient to close future budget gaps.

Therefore, it is hard not to conclude that additional Council Tax needs to be part of a new savings and funding package to allow Somerset Council to maintain essential public services. At the same time, the potential impact of higher Council Tax on those with low incomes would have to be addressed. For this reason, support offered through the Council Tax Reduction Scheme must be retained. This provides discounts of up to 100% to those with low incomes and further assistance to those suffering hardship.

Somerset Council cannot continue to rely on capitalisation to temporarily fix its budget problems. More help from government is needed and should be given, but this is unlikely to be big enough or quick enough.

Somerset Council must look to find more savings, which will not be easy as some service cuts have gone too far already. Finding more savings needs to be done with a lot more care than the recent plans for parking charges. It may be time for cross-party working that better involves all political groups in agreeing these difficult and unwelcome decisions. However, the scope for further savings is unlikely to be enough to close the budget gaps and especially not without more government funding or changes to the delivery of social care.

Therefore, additional Council Tax may be needed too, along with support to those on low incomes and more savings and more government funding.

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NOTES on Council Tax from Budget Papers (paragraphs 81-84 and 130)

Council Tax is banded with those in homes with high values (Band H) paying three times more than with the lowest banded homes (Band A). The government’s 5% cap increases Band A payments by £1.11 per week and Band H payments by £3.32. The further 2.5% increase adds 55p for Band A and £1.66 for Band H.

Somerset has a relatively low Council Tax base, with more properties in Band A-C than other comparable council areas, such as Wiltshire. Households in Bands A-C pay less Council Tax than those in other bands. Band H properties pay 3 times more Council Tax than Band A. Band E properties pay 2 times more than Band A.

During 2010/11 to 2015/16, Somerset Council’s predecessor authorities froze Council Tax, which has had the effect of reduces income to Somerset Council by approximately £27m per year. This was encouraged by the coalition government (Conservative and Liberal Democrat) at the time.

An external assurance review undertaken by CIPFA in 2024 stated that a “significant proportion” of Somerset Council’s budget shortfall in 2025/26 is attributable to “poor decision making” by the predecessor councils to freeze council tax or set increases at a very low level.

More on past Council Tax freezes

Previous freezes or reductions in Council Tax by Somerset councils between 2010/11 and 2015/16 were:

• Mendip (Conservative) – small reduction for 5 years.
• Sedgemoor (Conservative) – reduction for 1 year and freeze for 1 year.
• South Somerset (Liberal Democrat) – freeze for 4 years and reduction for 1 year.
• Taunton Deane (Conservative) – freeze for 4 years.
• West Somerset (Conservative) – freeze for 3 years.
• Somerset County Council (Conservative) – freeze for 6 years.

Following past freezes, Council Tax in Somerset is now below the average for comparable local authorities, including neighbouring areas, such as Cornwall, Dorset and Wiltshire.