Posted by: westlancashirerecord | April 5, 2018

Council Rainy Day Funds

Somerset, Norfolk and Lancashire county councils  are showing similar signs of financial stress as crisis-hit Northamptonshire, research by The Bureau of Investigative Journalism has found. These findings come as the National Audit Office (NAO) reveals that one in ten local authorities could run out of reserves within the next three years. In response, Meg Hillier, MP for Hackney South & Shoreditch and chair of the Public Accounts Committee, said many councils were relying on “rainy day funds” to pay for vital services.

While the NAO report does not identify individual councils, the Bureau found Somerset, Norfolk and Lancashire, which provide services to 2.6 million people, are exhibiting some of the warning signs that concerned auditors at Northamptonshire in the years leading up to its financial collapse in February. The Bureau previously reported that Surrey has even greater financial issues, thus identifying a total of four county councils showing crisis signs so far.

Rob Whiteman, chief executive of The Chartered Institute of Public Finance and Accountancy, said “Through my own conversations with chief financial officers, I have heard a number of warnings that councils may soon face untenable budget positions. The warning signs have been plain to see for a number of years”.

The Bureau identified these county councils after applying stress tests – based on concerns auditors raised at Northamptonshire – to all English councils responsible for social care. One of the key tests is a sharp fall in “rainy day funds” – the usable reserves that can be used to balance the council’s books. The Bureau also found that 22 councils had reduced these reserves by more than 50% in the last five years.

Lancashire overspent on children’s and adult social services in each of the last three financial years. Furthermore, its effective funding gap – the difference between the money it expects to receive and what it needs – is £97m in the coming financial year, the equivalent of 11.9% of its current budget. The council has approved the use of usable reserves to help it break even this coming year and plans to use further reserves in 2019/20, leaving it with just £5.9m to put towards its estimated £118.5m black hole in 2020/21.

Angie Ridgwell, Lancashire’s chief executive, said there “may be” sufficient reserves to support the budget gaps over the next two years but, “further savings will need to be made and fully implemented by 2020/21, at the latest, to deliver a sustainable position going forward”. She recently stated “The council is forecasting a funding gap of £157.8m in 2021/22”.

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