Today Northamptonshire County council (NCC) postponed their controversial sale of their brand new HQ at One Angel Square.
Because they are struggling to balance the 2017/18 budget (the end of the financial year being next week) they had hoped to sell the building to receive a huge capital receipt of more than £50m. They then planned to rent it back from the new owners on a 35-year lease. However, Government Commissioners are set to come in and take over the running of the County Council because of the well-publicised mishandling of County Council finances. Therefore, the Leader of the Council has decided to delay the sale. This is to allow the Government Commissioners the opportunity to comment on the deal when they arrive.
I hope this decision will also give the opportunity for other partners who will help form the new unitary authorities in Northamptonshire to be involved in this process. This is because it is these new councils that will have to take on the responsibility of paying the rent for the next 35 years.
This, however, leaves a big hole in this year’s accounts of about £17m. The only way that they can now make this up is to literally use every single penny they still have in their depleted reserves. They have £12m in general reserves (the absolute minimum amount they are allowed to have) and £5m in earmarked reserves which are put aside in advance of particular upcoming projects.
This is unprecedented, and I’m not aware of any council anywhere that has literally spent every last penny they have. Reserves have been raided again and again over the last few years to make up for the Council’s continued overspending. In 2013 Earmarked reserves totalled about £53m and have since been depleted to about £5m. It is this poor budgetary control that has come in for criticism in the recent Government Inspector’s report.
However, the current £17m shortfall to be covered by the reserves is only a current estimate. There is the very real possibility that extra in-year funding will need to be added to that figure in Social Care. But also the auditors have highlighted a risk around how the Council calculates its paying back of loans (known as Minimum Revenue Provision or MRP). This might also require extra funding this year.
Additionally as well as that there are still some very real questions about how the Council have been using the money it has received from selling off its assets and property. This potentially might mean they have used £9m of capital receipts in an unlawful way and if so this would also need to be funded. The auditors are also investigating how similar money was spent the year before in 2016/17 which is yet another financial risk.
There are therefore two very real financial problems facing the Council. Ultimately this means that the use of their entire reserves for this year may still not be enough to balance the books. If this is the case nobody really knows what will happen as it’s never happened before. The Chief Finance Officer does not know what will happen, nor do the external auditors and neither apparently do the Government. It really is unprecedented as no council anywhere has ever found itself in this position!
But even if the remaining £17m in reserves is enough, the Council simply cannot go into the new financial year with no reserves! It will immediately have to find the money from next year’s budget to somehow put money back into reserves and that will mean even more savings to come from the budget that was passed only a couple of weeks ago. That’s on top of the original savings that were in the draft budget announced last December, and on top of the extra savings that were agreed when the delayed budget was eventually passed at the end of February.
You may remember that the budget was delayed on advice that it was likely to be unlawful. That was connected with the issue of using capital receipts to plug up the holes in the Council’s spending that I referred to above. You may also remember that at the time I spoke about how the budget that was eventually passed was just a sticking plaster solution to get the Council past their legal obligation to set a budget. I said that it was never going to be deliverable in the form it was and would need to be altered. In fact, I said during the budget meeting itself, “So pass your budget if you want, but realise that as of tomorrow you’ve got to go back to the drawing board and start again”.
It seems tomorrow has already come.
Get ready for some very severe cuts to services and cuts that will undoubtedly have to come from Adult Social Care and Children’s Social Services. I’m afraid NCC is still nowhere near out of the woods yet.