Others will follow Slough | Local Government Chronicle (LGC)
In today’s tough environment, there is no room for mistakes like Slough BC, which declared a Section 114 notice on Friday, writes Nick Golding, editor-in-chief of LGC.
To adapt the old saying about buses to section 114 notices, you wait 18 years for one, then three come (roughly) at a time.
On Friday, Slough BC joined Northamptonshire CC (2018) and Croydon LBC (2020) in releasing the financial advisory which represents throwing in the towel and conceding that its books cannot be balanced. The previous board to do this was Hackney LBC in 2000.
For boards, this represents the trough of desperation (although it should be remembered that for many of these holy NHS organizations, such deficits are more the norm than the exception).
Slough’s predicament is the result of terrible mistakes on his part over many years, but also a financial environment that is far from benign for the boards.
The Section 114 opinion issued by Slough’s newly appointed CFO Steven Mair reads grimly. He writes that the council had miscalculated its minimum income provision – money to set aside to pay off debt – since 2016-17. During the same period, its borrowing quadrupled to Â£ 760million.
In addition, the council faces “a series of pressures and financial problems”, but effectively has no reservations and has committed the cardinal sin of charging the costs of the revenues to its capital budget.
While boards are legally required to balance their books, Slough is said to have had a 2020-2021 deficit of Â£ 56million, plus Â£ 40million for that year (even though he received a capitalization executive loan of Â£ 15million by the government). Without further action by the end of 2024-25, its general fund will be Â£ 159million in the red.
The financial management of the council has been poor. A Grant Thornton audit published in May warned of “inadequate arrangements and insufficient skills and capacities” on the board to prepare reliable financial statements and documents.
Thus, the council had to equip itself with a new financial team which discovered the true extent of its problems. Mr. Mair is well regarded in the industry. He can still find other horrors.
In addition, the council experienced bad luck. He has borrowed a lot to find a new goal in his downtown area – only for the pandemic to strike. Crossrail, due to speeding up the city’s connections to central London, has been repeatedly delayed while nearby Heathrow Airport, the city’s largest employer, has been decimated by Covid, affecting its local economy and increasing demand for services.
And, of course, the financial environment for local government is miserable. Boards have seen their funding cut in half according to the National Audit Office during the first seven years of austerity. Subsequently, while the government eventually covered the additional costs that councils faced as a result of Covid, it did not fully compensate them for lost income such as business income.
When LGC interviewed senior officers in February, as many as 12% said their council was set to issue a Section 114 notice by the end of 2022-2023. Four-fifths said the council’s financial system was unsustainable.
As Covid wreaks havoc on public finances, it’s hard to believe Chancellor Rishi Sunak will have the resources for non-favored areas like local government during this fall’s spending review.
That leaves the miserable prospect of other boards joining Slough in posting a Section 114 and other boards limping with insufficient resources to recover as they preside over declining services.
Slough appears poised for a period of political and managerial turbulence and, quite possibly, further central intervention.
The council has had a turbulent history since its inception as a unitary authority as part of the reforms initiated by the Major government which came to fruition in 1998.
Many believe that this reorganization led to the replacement of the old Berkshire CC with a series of units far too small to be managed effectively. Slough has a population of 164,000; that of the neighboring Windsor & Maidenhead Council – which has also experienced financial difficulties – has 151,000 and the Bracknell Forest Council has only 123,000.
Could the neighborhood be restructured? One could see why Robert Jenrick might consider this option. This was the path followed during the financial collapse of Northamptonshire CC, although it would make less sense to wipe off the Croydon LBC map, whose merger with another authority would lead to a super-borough and unbalance the rest of the government of the capital.
Other councils are threatened with financial disappearance. Chartered Institute of Public Finance & Accountancy chief executive Rob Whiteman told LGC that if you’re looking to identify them, the best place to start is to look at the other seven who have accepted a capitalization loan with the government.
Among these, dramatic new concerns have surfaced over the past week or so at Peterborough City Council, where EY listeners have raised “serious concerns” about its viability and to Luton BC, which has been forced to borrow heavily to replenish its precious airport asset with another Â£ 140m to avoid having to sell it at rock bottom. Luton’s predicament felt like a case of wasted money, although one can also feel some sympathy for a board that has generally been well run and has largely won thanks to its airport in better times.
Things are tough in local government with good advice in trouble as well as bad. Mistakes can have dire consequences, and the expertise to avoid them is often lacking after a decade of foreclosure from the industry.
Let us be grateful for the work of those who attempt to navigate this rough sea – officers and members more often than not, pulling councils out of the abyss and seeking a better future for their people. However, it is clear that more will follow Slough.