Agenda item

A letter to Somerset Council over the financial challenges and risks that Somerset Council are facing to financial sustainability in the short and medium term.

The Audit Committee RESOLVED:-

 

·     To consider the issues

1. 

2. 

3. 

4. 

5. 

raised by the Section 151 Officer in his letter to DLUHC concerning the financial challenges faced by Somerset and agreed to hold an additional meeting in December, along with Directors, to look at and review the current position. The request for an additional meeting was agreed to by the Deputy Monitoring Officer and a date will be advised as soon as possible.

 

·     To note the findings from Grant Thornton following the letter to DLUHC concerning Somerset Councils Financial Sustainability and the Chair confirmed that he would formally write a letter to the S151 Officer reflecting their concerns.

Public Questions

David Orr was asked to read his statement.

 

This new unitary council is, according to auditors, facing a section 114 notice from next February onwards. This is the private sector equivalent to “going bust”.

 

The Conservatives predicted savings of £18m from a new unitary council, yet you are facing an existential crisis within just five months of formation.

 

The Lib Dems inherited from the County Council Conservatives a £23.4m overspend, while the four District Councils passed over £4.7m of underspends together with their reserves.

 

There were always concerns about the County Council winning the unitary competition as “a continuing authority”. Would the new unitary council get a fresh start or would the existing County Council management cultures dominate? Would the ongoing and

intractable deficits in social care quickly consume the District Councils’ reserves and underspends?

 

The deteriorating financial position has worsened by a staggering £4.2m in just one month. This does not indicate good financial controls, or provide confidence that overspends will be tackled and savings made.

 

The Council has reached for expensive consultants to tell well-paid Executives how to make savings. Adult Social Care is spending £7.5m with Newton Europe to save a claimed

£10m, but probably after the council is “bust”.

 

In the disastrous South West One outsource to IBM,

£182m of “assured savings” were promised, but never delivered. The Ignite “transformation” programme in Taunton Deane and South Somerset Councils caused service disruption with very high recovery costs.

 

A private company expecting to go “bust” within a year would show real urgency. Are the unitary savings from combining five councils into one being driven forward with urgency?

 

There are big savings in reducing management overheads and rationalising a huge property portfolio. What is the position on management overhead cost reductions, and rationalising or renting out the overlapping property portfolio from five Councils, to raise cash and generate income?

 

There is a great deal of scepticism about the very high levels of “working from home” in the public sector. Should Councils, like the private sector, be moving to hybrid working where some office-based work is required? If the Council is going to have mostly home- based working, then how many offices are now redundant?

A s114 notice could result in 15% council tax rises, huge service cuts to minimum levels, and staff losses with minimal terms and conditions.

 

Whitehall will send in Commissioners to do the job that this administration is elected to do and the senior officers are paid to manage. Members, the time for

urgent action is now.

 

David Orr then asked the question: A private company expecting to go “bust” within a year would show real urgency. Are the unitary savings from combining five councils into one being driven forward with urgency?

 

Councillor Liz Leyshon responded:

 

Thank you for your informed statement with incorporated questions. First, the Month 5 projected outturn has been revised for Executive and now shows a reduced projected overspend due to a reduction in financing costs. However, the figure is still very high, following a year (2022/23) when the budget set by the previousadministration wassoon provento beinadequate todeal withthe effects of inflation and increased interest rates. That overspend has required the use of £18.7millionof reserves.As manyCouncils acrossthe countryand acrossthe politicalspectrum arefinding, itis simplynot possibleto planand surviveon useof reserves – although the Government would appear to prefer Councils to NOThold reserves.

The costs of Adults and Childrens social care are indeed the major factor, and it’s of great concern to this administration that many of the facilities and services for Somerset residents are not statutory, and therefore less secure, but are hugely importantin theprevention agenda.We needto ensureresidents canlead healthy, happy and fulfilled lives, in their own homes for as long as possible.

The work with Newton Europe is based on a risk sharing basis, with Newton not finishing until they have delivered the minimum of £10million ongoing savings. Their work is intended to ensure that the numbers of residents coming into residentialcare donot increase,and thatre-ablement becomesthe defaultpriority for residents of Somerset.

For Childrens, the work that has been underway for some time with the Shaw Trust is now ensuring that children and young people can return from very expensive unregulated placements to live in Somerset again. The homes of the Homes and Horizons project are purchased by Somerset Council, and as they have no change of use in terms of planning permission, and are improved considerablyin theirenergy ratings,the investmentsare, onemight say,as safe as houses.

Your pointabout asimilar situationin aprivate companycreating agreater sense of urgency is well made, however no sensible company would seek to acquire or merge with four other organisations or companies at the same time. Yet that is whatwe wererequired todo, justfour yearsafter twoother Councilshave formed one Council. For a sanity check on that decision, I would refer you to the current Government.

Working fromhome, orrather hybridworking, hasits placein ourCouncil. Wealso need to recognise that many of our highly valued staff are needed to work in people’shomes, onthe streetsand inour parksand sodon’t havethat choice.For elected Members, the ability to attend some meetings and many briefings on Teams or Zoom is a boon for those who rightly wish to reduce travel, or who have other responsibilities.

As wehave understoodthe needfor officespace forall 5000+staff, wehave at the same time been able to commence a rationalisation of council buildings.

However, leases to other organisations such as the Police at Deane House and Brympton Way,and other partner and voluntary sector organisations at Shepton Mallet andBridgwater meanthat weare notable toput upthe forsale signsuntil we have a clear plan and are able to work with our partners in the one public estate so that we can all ensure the best possible results – in terms of human resources and capital receipts.

We are well aware, as an administration, of the implications of a Section 114 notice. It isour intention to take the difficult decisions and to set a direction for the newCouncil withthe benefitof ourlocal knowledgeand commitmentto Somerset, rather than to leave it to Government Commissioners, paid by the people of Somerset, to find a financial answer that does not take into account local commitment and corporate memory.

Thenext Executivemeetings inNovember andDecember willbe criticalin our absolute necessity to lay out our future plans for Somerset Council as we recognise that the local authority world has changed since the One Somerset business case was written.

 

Nigel Behan from Unite was then asked to read his statement.

Unite is concerned that Somerset Council are at risk of issuing a S114 notice (“effectively bankrupt”) -as many other councilsare indicating they may haveto do –and not only for shortfalls (and “increasing pressures”) in funding for Childrens and Adults Social Care.

 

Our members provide vital public services which are important for service users (and also the functioning of the local economy.) Unite is willing to help avoid Somerset Council having to take this drastic step. The prospect of a S114 notice will increase anxiety and uncertainties amongst dedicated staff.

 

Issuing a S114 notice has a detrimental impact on democraticaccountability andlocal serviceprovision as witnessed inareas wherea S114notice hasbeen issued.

 

Iwish toask somequestions aboutAgenda Item6

 

External Audit Report on Value for Money Letter toSomerset Council on 2023/24 Financial Stability(6a)

 

And the additional documents 6b Financial Challenges Report Sept23 and 6c Somerset Council Letter October 2023

 

In Somerset Council’s letter to Nico Heslop Director LocalGovernment FinanceDepartment forLevelling Up, Housing and Communities (6b) it is stated that:

 

“The key factors in the position for Somerset CC is overspends in both Adults & Health and Childrens & Families of £15.4m and £21.2m respectively, this positionis partlyoffset by£13.2m underspendingacross the rest of the council.

 

The total reserves at the start of 2023/24 for Somerset Councilwere£314.8m.However,£131.2mofthisrelates to reserves held on behalf of others such as Somerset Rivers Authority, Heart of the South West LEP, Health and Schools. The 2023/24 budget included £19.9m use ofreserves beingmade upof £9.9mfor onceoff funding to support projects and £10m to balance the budget. After taking account of these and other commitments thecurrent positionis GeneralReserves of£49.8m. this isat thehigh endof ourrisk-based assessmentof GeneralReserves ofbetween £30mand £50mbut isreflective of the significant risks the council currently faces. Total Earmarked Reserves are £104.9m and we are currently undertaking a review of all of them to identify if any can be released and repurposed.”

 

Nigel Behan then asked the question:

 

Using the figures in the second paragraph (about General Reserves-GR) then can you supply a breakdown of the what the “other commitments” (total £113.9m) are, leaving the current position of GR at £49.8m?

 

Councillor Liz Leyson responded:

 

Theamalgamated reservesare currentlybeing reviewedand apaper willcome to Executive in early December. The reserves from the five predecessor councils include:

·       General Fund Reserveswith amalgamatedtotal of£49.8million

·       Earmarked reserves thatare ineffect ringfenced. Thesereserves arefor specific projects or programmes such as the Town Deals or Section 106 agreements

·       Earmarked reserves thatwere identifiedfor councilpriorities. Someof these may be able to be repurposed, giving the new Council a higher level of resilience but with understanding that those reserves can only be spent once.

·       Reserves that areheld onbehalf ofother organisationssuch asSomerset Rivers Authority, Local Enterprise Partnership, the maintained schools

£m

TotalReserves                                                                   314.8

Reserves held on behalf of others                                                                                                                                                                                       131.2  SomersetCouncil Reserves                                                                                                                                                                                                                                                                                     183.6

Useof Reservesfor 2023/24 Budget                                                                                                                                                                                            19.9

163.7

Other Commitments

NewtonEurope                                                                                             7.0

Useof Reservesfor 2024/25Budget (Useof publichealth reserve,

ashdie back& highwaysvegetation)                                                                                                                                                                                             2.0

                                                                                         154.7

GeneralFund                                                                      49.8

EarmarkedReserves                                                                                                                                                                                         104.9

  154.7

 

Nigel Behan then enquired:

 

The letter from the Auditors notes: “The Council recognises the significant financial challenges that it faces due to the impact of inflation and increases in demand and cost, particularly in relation to Adults and Childrens Services. The revenue budget forecast for 2023/24 reported to Members in September 2023 was an overspend of £26m. In addition, the medium-term financial strategy report approved in July 2023 forecast funding gaps of £42m in 2024/25 rising to £99m by 2026/27.”

 

Is it now time to review the commissioning and operations functions in Adult Social Care as a Somerset Councilpapernotedlastwinterthatthecaremarketwas failing(“Competitive Marketfailure –As anorganisation we commission a large amount of our services and that hasbeen agood wayof keepingour costsdown. Weare now seeing a failureof the competitive market across a rangeof areasbut witha particularhigh impactin social care, with very significant cost increases in Children’s external placements and Adults residential & nursing care. The spiraling costs in these areas are putting the councils’ budgets under significant pressure.”)?

 

Councillor Liz Leyshon responded:

 

ThisCouncil, andSomerset CountyCouncil hasfor manyyears usedblock and spot placements for adult’s social care, and placements for children and young people who are not able to live at home.

 

For those years, the Somerset marketfor Adults’ placements was providing extremelygood valuefor theCouncil Taxpayerof Somerset.The impactsof interestrates, Costof Living,Brexit, Covid,Covid jabs,and thecommencement of the Fair Cost of Care exercise as promised by this Government have all been detrimental to the cost of placements, both block and spot.

 

Further pressures have been caused by what is known as capital drop, where a resident’sfinancial contributionto theirown care(known asself funding)ends as their capital is exhausted.

 

Toreplace themarket wouldrequire veryconsiderable capitalinvestment innew fit for purposebuildings, in recruitment and in management. At this stage inthe life of the new Somerset Council that would be far beyond the financial capability and human resources available to the Council.

 

Nigel Behan then asked a further question:

 

“2023/24 Budget Monitoring We formally report the budget monitoring position to both Scrutiny and the Executive on a monthly basis. Our latest revenue budget monitoring report (Month 5 – End of August) is forecasting an overspend of £30.3m for the year which is a deterioration of £4.2m on the previous month. There are significant forecast overspends in Adults & Health of £14.9m and Childrens & Families services of 11.8m. These overspends reflect the continuing spiralling costs in these sectors which show no sign of abating. We have put in a range of measures across the council to try and address the potential overspends but given that Adults & Childrens make up nearly two-thirds of the total budget, I am not confident we will see a significant reduction.” (6b)

 

Do you anticipate any new/additional funding from central government to address the funding shortfalls/pressures etc in Childrens and Adults Social

Care?

 

Councillor Liz Leyson responded:

 

The Month 5 has been revised for the Executive meeting on 8th November and now shows a reduction in projected overspend due to cost of financing being lower than previously forecast.

 

However, the projected overspend is still very high. My expectation is that the overspend will be covered in three ways, with the relevant proportions to be determined in the outturn for 2023/24:

 

·       In year savings, with all directorates now understanding the scale and immediacy of the new Council’s financial challenge

·       Some use of reserves

·       And a hoped-for allocation from Government for all upper tier authorities towards the increased demand and cost of Children’s Services and Adults’ Social Care. This is traditionally published on the Thursday before  Christmas, if it is published later (in the New Year) then it will make the budget setting process even more difficult.

 

The Chair then responded that if David Orr or Nigel Behan wished to ask any supplemental questions, they should put them in writing and he would ensure that they receive a written response.

 

The S151 Officer then went on to present his report highlighting the features that the new council has inherited and the difficulties around each legacy district.

 

He pointed out that Somerset was not alone in the UK where a S114 Notice had to be issued. However, Somerset were being transparent about a S114 Notice being imminent so as to avoid any surprises if it were to actually be issued. Somerset Council were being above board and transparent.

 

The Key Audit Partner at Grant Thornton explained that they had maintained ongoing discussions regularly both prior to the inception of the Council and in the months after it’s inception. He gave his assurance that they had been keeping abreast of the developing situation with regard to the financial position of the Authority. He confirmed that as soon as the S151 Officer alerted them to the fact that a S114 Notice may be necessary they considered their statutory responsibilities in determining whether or not they needed to exercise formal powers, recognising the gravity of the situation. 

The Key Director Grant Thornton further stated that they instead of exercising their statutory responsibilities, they had decided to formally put on record their concerns that the Council needed to take urgent action and that this would be embedded and understood across the organisation. He agreed that they did recognise that this was a new Authority and forming its new arrangements, but it needed to move at a pace to make sure that sustainable financial savings could be delivered whilst maintaining the quality of public services which are so important to local residents.

 

He further asserted that this was not just a Somerset issue and that Local Government were facing a period of significant challenge and that the Somerset Council will draw on the experiences of other Councils who have had to face this before.

The above notwithstanding, Grant Thornton would continue to review the progress that was being made by the Council to both address the in year deficit and al the budget gap going forward.

 

The S151 Officer affirmed the importance of communication.

 

There was a query surrounding the capital program and whether these were funded by government? Special mention was made of the Glastonbury Town Deal and the levelling up project in Bridgewater.

 

Councillor Liz Leyson responded that these funds were ringfenced in the reserves. These projects had been descoped in order to stay within that allocation. Furthermore, they have been able to raise funds in order to keep the ambition of their project. These projects will therefore not be stopped.

 

After some deliberations it was agreed that an additional Audit Committee meeting in December with only one item on the agenda, to consider financial stability in the Council. This was approved by the Deputy Monitoring Officer. It was suggested that Scrutiny be included in this meeting as well as all Directors and Members.

 

A question was posed as to whether the Council would be able to look at borrowing the money and if refinancing options could be taken taking into account as the council was in financial difficulties and should be treated with forbearance.

 

The S151 Officer confirmed that this was one of the areas being looked at with Treasury Management but if the Council was to approach the Government for financial support they would be charged an extra 1% interest on the borrowing.

 

The Chair undertook to write formally to the S151 Officer and reflect the concerns of the Audit Committee.

 

The Audit Committee RESOLVED:-

 

·       To consider the issues

1. 

2. 

3. 

4. 

5. 

raised by the Section 151 Officer in his letter to DLUHC concerning the financial challenges faced by Somerset and agreed to hold an additional meeting in December, along with Directors, to look at and review the current position. The request for an additional meeting was agreed to by the Deputy Monitoring Officer and a date will be advised as soon as possible.

 

·       To note the findings from Grant Thornton following the letter to DLUHC concerning Somerset Councils Financial Sustainability and the Chair confirmed that he would formally write a letter to the S151 Officer reflecting their concerns.