Somerset Council could still go bankrupt within 12 months despite passing a balanced budget – By Local Democracy Reporter Daniel Mumby

SOMERSET Council could still declare bankruptcy within the next 12 months despite managing to pass a balanced budget.

Protesters gathered outside the Canalside in Bridgwater last week as councillors came together to set the revenue budget for the next year, attempting to plug a £100m budget gap through a council tax rise, use of reserves, extensive savings and selling off assets.
The meeting was a fractious affair, with Conservative opposition councillors being heckled for the perceived inaction of the party at a national level to adequately fund public services since 2010.

Inside the chamber, former leader cllr David Fothergill faced numerous interruptions as he laid the blame for the budget crisis at the feet of the governing Liberal Democrats, describing their time in office to date as “two years of incompetence and mismanagement”.
Lib Dem leader, cllr Bill Revans, fired back that the national government had “moved the goalposts” and the council’s crisis was “a legacy of 13 years of Conservative control” of the previous county council.

After hours of debate, the council managed to pass its revenue budget – but with a stark warning from officers that without drastic reforms from government, it would have little choice but to call in commissioners by April 2025.
Here’s everything you need to know:

Why is Somerset Council in such dire straits?

The vast majority of local authorities across the UK are experiencing huge financial difficulties caused by a number of factors. Brexit and pressures in the job market have made it hard to recruit social workers, carers and other vital staff, forcing the council to pay extra to secure agency staff.

The war in Ukraine and the ensuing rises in inflation has pushed up the cost of construction projects, along with the cost of heating and keeping the lights on at the various council premises. The coronavirus pandemic has cast a long shadow, with rising numbers of children presenting with complex needs and requiring additional support after missing significant time at mainstream school.

Somerset already has an ageing population, meaning large amounts of the council’s funding go towards social care for vulnerable and elderly adults.

But the cost of providing this care has soared following the government’s aborted ‘open book’ exercise, which revealed the cost of providing care in Somerset to many of the major UK-wide providers – giving them a reason to push up their costs.

All of this means that the council is facing a budget gap of £100m for next year – on top of overspending by around £17m of the current financial year.

Chief financial officer, Jason Vaughan, said the council was “at the front of the queue of those authorities in financial distress”.

How is the council going to get out of this mess?

While the in-year overspend will be plugged using existing reserves, the council is taking a four-pronged approach to plugging the gap for the 2024/25 financial year – namely:

• Raising council tax by the maximum amount
• Selling off assets and using the proceeds to fund day-to-day services
• Cutting front-line services and reducing back-room staff
• Using some of its remaining reserves

The government did provide an additional £5m of funding in late-January – but this was barely enough to cover a rise in wages paid to care providers out of the council’s adult social care budget.

Deputy leader, cllr Liz Leyshon said, “More government support will be needed soon to prevent the wholesale failure of local authorities.”

By how much will my council tax be rising?

Council tax is calculated on the basis of a banding system which was brought in by the Conservatives in the early-1990s to replace the unpopular poll tax. Council tax rises are often described in relation to a Band D property, which is taken as an average – the lower your band, the less you will pay.

Somerset has a relatively low council tax base, with 65% of its properties being in Bands A, B or C. Council tax can only be raised by a maximum of 4.99% each year – of which 2% has to be spent on adult social care, leaving 2.99% for other day-to-day services, such as road repairs, rubbish collection and protecting vulnerable children.

The council had asked the government for a one-off rise of 10%, which councillors argued would bring it more in line with Dorset and its other immediate neighbours. But the Department for Levelling Up, Housing and Communities (DLUHC) denied this request in early-February – depriving the council of a further £17.1m of potential funding.

Under the approved budget, the council’s share of a Band D council tax bill will rise by £82.14 a year to £1,728.18 – a rise of £1.58 a week.

Your council tax bill will also include contributions to Avon and Somerset Constabulary (which agreed an increase of £13 a year in early-February), Devon and Somerset Fire and Rescue Service (a 2.99 per cent rise) and your local town, parish or city council – the latter of which can raise its share of council tax by as much as it likes.

Taken as an average, the average council tax bill in Somerset for 2024/25 will be £2,267.03 a year – a rise of £150.94, or 7.13%, compared to the 2023/24 financial year.

Council tax support is available for numerous people, including single occupants and those on low incomes – so please visit the council’s website, www.somerset.gov.uk, to see if you are eligible for support if you are struggling.

How much will the council raise by selling off assets?

The council holds sizeable amounts of land, property and other assets as a result of five local authorities being brought together. The council intends to sell off all the commercial investments it inherited from the four district councils, with officers estimating that this could raise between £15m and £20m by April 2025.

Jason Vaughan said in December that 16 sites had been sold in the financial year to date, and a further 74 sites had been identified as surplus and were in the process of being sold off.

Normally, capital receipts generated from the sale of land, assets and property cannot be used for revenue spending (i.e. the day-to-day delivery of services). To get around this, the council has applied to DLUHC for a ‘capitalisation direction’, asking for permission to use up to £36.9m of capital receipts to help plug the budget gap.

While the council has now set its budget, it won’t find out whether DLUHC has granted permission to do this until the end of March – and if the government says no, the council will have to use even more of its reserves than intended or borrow the money.

Cllr Mike Hewitson, who chairs the audit committee, said the sale of assets would “buy us some time” to put a transformation programme into action.

The transformation programme will lead to at least 1,000 job losses as the council seeks to reduce duplication and streamline the delivery of services – though the cost of redundancies could prove eye-watering.

Cllr Hewitson warned, however, that “an asset can only be sold once”, adding, “Without significant change, the likelihood of us having to issue a Section 114 notice remains high.”

Which services will be cut – and by how much?

More than £35m of savings were originally proposed – including the closure of five household waste recycling centres (to save £963,000), keeping the Octagon Theatre in Yeovil closed (£174,000), installing no new play equipment for a year (£168,000) and shutting the tourism offices in Taunton and Yeovil (£167,000).

Since these plans were published, town and parish councils – who have no cap on increasing their precepts – have stepped forward to take charge of some local services.

But other services will still be cut back, with five of the 16 household waste recycling centres expected to close in the coming months, school crossing patrols to be cut where the parish or town councils haven’t stepped in, and less money for highway maintenance (including verge cutting).

Car parking charges are also expected to rise across the county, along with other fees currently charged by the local authority.

How much of the council’s reserves will be spent?

To plug the remainder of the budget gap, the council will use £36.8m of its general reserves – essentially the council’s savings which have been either built up over time or inherited from the abolition of the five previous councils.

The government advises councils to keep general reserves of between 5% and 10% of their annual revenue budget – which equates to between £30m and £60m in Somerset’s case.

Jason Vaughan said using this much reserves still left the council with more than the minimum amount permissible. However, reserves can only be used once – meaning the council now has much less room for manoeuvre when it has to set its next budget in February 2025.

What happens if the council cannot set a balanced budget?

If the council cannot balance its books, its only option is to issue a Section 114 notice, effectively declaring bankruptcy.

If this notice is issued, some day-to-day essential services will continue (such as adult social care, children’s social care and waste collection), while the council has 21 days to put together and agree an emergency budget – during which time it cannot announce any new spending.

If it cannot agree a plan, the government will send in unelected, expensive commissioners to come in and dictate what has to be sold off or cut to balance the books.

This step could result in the closure of numerous libraries, leisure centres and other discretionary services, and lead to incredibly high council tax rises – with Birmingham residents facing a rise of 20 per cent over two years and both Slough and Thurrock facing hikes of ten per cent or more.

Crucially, there will be no democratic oversight for these commissioners, with ordinary residents having no say in what services say open or close.

Cllr Revans urged all parties to avoid this situation and support the budget stating, “We need to recognise that this is a broken model of local government, and we need to ensure that there is a consensus on the future of local government.

“I am angry. What is being done to local government, across the country and in Somerset, is appalling.

“If you do not support this, you are supporting issuing a Section 114. You are abdicating your responsibilities.”

How did councillors react to the budget proposals?

The Tories and Lib Dems clashed furiously after the budget report was introduced.

Cllr Fothergill – who led the county council between 2017 and 2022 – said the Lib Dems were setting the budget “on a wing and a prayer” and claimed Bill Revans and his team had ignored both advice and support since they won the local elections.

Cllr Revans responded by attacking the Conservatives’ record in government and their decision to freeze council tax for six years while in charge of the county council.

Numerous opposition councillors said there was little choice but to approve the budget, while expressing concerns about what would happen 12 months down the line. After hours of discussion and debate, the budget was passed by 52 votes to nine, with 31 abstentions.

What happens next?

The council’s corporate and resources scrutiny committee will review the business case for the transformation programme when it meets on 7th March, with the committee providing feedback to the executive committee ahead of the programme being implemented.

If the government does not agree to the capitalisation direction by the end of March, an emergency full council may be needed to approve the use of further reserves or borrowing to plug the gap.

Whenever the next general election is called, the next 12 months promise to be tense and precarious for public services – and whoever wins the election will have to make significant changes very quickly to prevent an utter collapse of local councils.