Spending Review saves council from depleting reserves

Shropshire Council says last week’s Spending Review has rescued it from exhausting its reserves this year.

A report from external auditors going before councillors this week says the authority faces a 2020/21 financial gap of £12.4m with the complete eradication of its reserves over the financial year.

However, the council said the report by Grant Thornton predated the Spending Review and that it now expects to deliver a balanced budget for the year and retain up to £17m in reserves

In November last year Shropshire imposed a spending freeze to deal with a projected 2018/19 £6.9m in-year overspend.

Grant Thornton’s annual audit letter to the council, included in a report pack to audit committee members ahead of their meeting this week, said Shropshire had finished the 2018/19 financial year with a net underspend of £167,000.

It said that pressures in adults and children’s social services – the latter responsible for a £4.6m overspend – had been offset by savings elsewhere.

The letter noted that Shropshire is facing an estimated financial gap of £12.4m for 2020/21, based on the assumption that more than £20m of government funding from sources including the Rural Services Delivery Grant, Improved Better Care Funding and Social Care Grant would not continue beyond the current multi-year settlement.

“The current financial strategy projects that reserves will have been fully depleted by 2020/21,” the auditors said.

“We remain concerned that the council is using non-recurrent funding from reserves to balance both its 2019/20 and 2020/21 budgets and fund recurrent expenditure”.

However, ahead of the committee meeting, council leader Peter Nutting said the detail in chancellor Sajid Javid’s Spending Review had alleviated some of the pressures flagged by Grant Thornton.

“The audit report confirmed that Shropshire Council had delivered a balanced budget last year and, following the spending round announcement, we’re expecting to set a balanced budget for next year whilst retaining up to £17m of reserves – held specifically to help manage the budget – for future years,” he said.

“The spending round announcement, which has improved our financial position, was made after our external auditors submitted their report.”

Nutting said the council knew it needed to innovate and become even more efficient to become financially sustainable and achieve good value for taxpayers.

“We are investing to generate new income as well as exploiting new technology which enables new, more efficient, ways of working,” he said.

“We are now at a point when delivering through our own staff is often more reliable and cost-effective than some outsourcing. This innovation and entrepreneurial approach with our developing ‘can do’ culture continues to deliver a better budget outturn than projected year-on-year.”

However, Nutting accepted that adults’ and children’s social care were continuing to increase in costs by “over £10m per year” as vulnerable people across the county needed more support.

Nutting said he expected the government to bring in a fair funding solution for social care that would “be a long overdue boost and could solve the gap in our financial projections”.

“We believe that proper funding of children’s and adult social care will be forthcoming in the very near future,” he said.

The Grant Thornton report on Shropshire’s financial position said the council had set an expenditure budget of £593.1m for 2019/20, and that it’s financial strategy for the year had included savings of £18.5m – 50% of which had been delivered as of 31 May.

It said that the assumptions on which it predicted a £12.4m funding gap for 2020/21 would have led to a gap of £39.1m in 2021/22, £46.8m in 2022/23 and £57.2m in 2023/24.