Somerset Council need to sell investments to fix budget gap

The unitary authority declared a ‘financial emergency’ in early-November, revealing that it was predicting an overspend of £27m this year and a budget gap of £100m for next year – driven primarily by soaring demand for children’s services and adult social care.

Initial savings have already been identified to reduce both of these figures, with the in-year overspend now predicted to be £18.7m and the budget gap for 2024/25 now expected to be £87m.

But council officers have admitted that a sale of some of the council’s existing assets, including its commercial investments, will be needed in order to deliver a balanced budget and prevent the council from declaring effective bankruptcy.

Under current government rules, UK councils cannot use capital funding (i.e. money used for pay for new infrastructure, such as roads and schools) to fund revenue spending (i.e. day-to-day spending, including carers’ fees, transport costs and utility bills).

The Department for Levelling Up, Housing and Communities (DLUHC) recently announced that it would allow councils to undertake a “capitalisation direction” – where revenue spending is moved across to the capital budget, funded by either external borrowing or the sale of existing budgets.

Deputy leader Liz Leyshon introduces the budget. (Image: Somerset Council)

This action does reduce the revenue budget on paper, making it superficially easier to balance the books – but its success relies on the councils being able to rapidly sell assets which they might otherwise need.

Jason Vaughan, the council’s chief financial officer, provided further details when the council’s executive committee met in Shepton Mallet on Wednesday morning (December 6).

He said in his written report: “There is a significant amount of work taking place to reduce the budget gap; however, we will not be able to set a balanced budget for 2024/25 without government support through a capitalisation direction.

“There have been some initial discussions with DLUHC over this and the recommendation is that the council formally requests a capitalisation direction.

“This would enable the council to capitalise an amount of revenue expenditure and either borrow or use asset sales to finance it.”

The sale of assets is currently preferred to additional borrowing as a result of high interest rates, which increase the overall amount which will need to be repaid down the line.

The executive agreed in November a policy governing the process by which it can dispose of surplus land, property and commercial investments – with the majority of the latter being inherited from the four district councils when the unitary authority was created in April.

Mr Vaughan said 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.

He said these sales would generated between £15m and £20m by April 2025.

Deputy leader Liz Leyshon said she had been “bitterly disappointed by the autumn statement”, which contained no additional central government funding for local authorities or any room for manoeuvre on the limits for increasing council tax.

Unitary authorities are limited by law to only raising council tax by 2.99 per cent each year, plus an additional two per cent ring-fenced for adult social care.

In Somerset, a increase of this level would bring in an additional £18.9m, based on current estimates of the number of properties.

Town and parish councils, by contrast, have no limits on putting up their council tax – with discussions currently taking place about how many services currently provided by Somerset Council could be devolved down to a local level.

Shepton Mallet Town Council is already predicting that its share of the council tax precept will have to rise by 48 per cent in April to take on additional services in the town.

Ms Leyshon criticised the government for a lack of long-term vision on the funding of councils and adult social care, stating: “I can see the lanes and roads all across this country full of cans being kicked down the road.”

Councillor Ros Wyke, portfolio holder for economic development, planning and assets, said the lack of a detailed solution to the phosphates crisis had delayed new housing across Somerset and therefore prevented a larger council tax base.

Councillor Ros Wyke, Portfolio Holder for Economic Development, Planning and Assets. (Image: Daniel Mumby)

She said: “We have 18,000 houses sitting and waiting to go in the planning system, and that’s not including the ones that are on hold at an earlier stage.

“I’m really disappointed that the government hasn’t done more to resolve the problem and provide funding for this issue.

“We have a perfect maelstrom of issues which puts us in a difficult position.”

If the council cannot pass a balanced budget, it will have to declare effective bankruptcy, issuing what is known as a Section 114 notice.

In this situation, the government will appoint unelected commissioners who will come in to run essential services and decide what needs to be cut back or sold off – with next to no democratic accountability.

Councillor Heather Shearer, associate portfolio holder for children’s social care, sought to assure Somerset residents that everything would be done to protect their services in an accountable way.

She said: “We will continue to listen to local people and explain to them as much as we can why we are taking these decisions. It’s better for us to do it than a commissioner.”

Opposition councillors said that Somerset taxpayers faced a future of paying higher and higher amounts but getting less and less from their public services.

Councillor Gwilym Wren (independent): said: “The cost of running the council will be the same or increasing, and yet we will be offering them a much reduced service as they pay more through their precepts.

“I can’t see how that is going to pan out. I’m heartened by the work that has taken place, but we’re in a hole and I’d quite like us to climb out of it.”

Councillor Dave Mansell added: “Some of us warned about the risks of making commercial investments at the time, and I wish we had been listened to more.

“But the main causes lie at the national level, with the long period of austerity, the council tax freezes for long periods in Somerset, and the failure of government to provide fair local funding.”

A breakdown of the planned cuts and savings will be published before the executive’s next meeting in Bridgwater on January 15. The full council will set the final budget on February 20.

Councillor Bill Revans, leader of Somerset Council. (Image: Daniel Mumby)

Council leader Bill Revans said: “No decisions have yet been made but it’s clear we’re going to have to look carefully at every saving proposal.

“It’s either that or we follow the likes of Birmingham and Croydon Councils and serve a Section 114 notice. Both scenarios mean we will be effectively setting an emergency budget in February.

“We will take these hard decisions, working with national government, our communities and our partners to minimise the impacts on our residents and achieve the best outcome possible in this awful situation.

“I am pleased to have spoken to some of our MPs to outline our situation and they have agreed to speak up for us. I would urge residents to lobby your local MP and ask them to join us in rolling up our sleeves to work together for the people of Somerset.”