Auditors have issued a third section 24 notice in three years to Birmingham City Council, concluding the authority faces a “unique level of one-off risks”, including funding for the 2022 Commonwealth Games.
The section 24 notice, issued by auditor Grant Thornton, legally requires the council to take action on a number of areas relating to governance and finance.
In a letter to the council, the accountancy firm warned the council over its use of non-earmarked reserves, even though these currently stand at a healthy £152m.
The letter said: “While the council’s reserves, earmarked and un-earmarked, are substantial, they should be viewed in the context of the unique financial risks that the council faces, which are more considerable than those faced by most other local authorities.”
The council’s finances for this year relied on using £30.5m of reserves, while the 2019/20 budget allocates £5.9m in general reserves to support the budget, and £21.1m of earmarked and other reserves for other initiatives such as “pump-priming” savings schemes.
The letter said Birmingham is “prudent” in recognising the dangers it faces.
“However, the council in our view faces a unique level of one-off risks,” it said.
“In addition, any failure to deliver on planned savings over the next three years, could also lead to a depletion of reserves.”
According to the auditors, risks faced by the council include:
The Commonwealth Games, to which the council has committed £184.7m.
- The project assumes partnership funding of £75m, of which £30m still needs to be agreed by partners. “Accordingly, there remains a risk that the council might have to meet further liabilities if costs are not well controlled,” the letter said.
- Equal pay claims, “although it is difficult to quantify the extent of the risk as there are inherent uncertainties surrounding the potential volume, timing and chances of success of any future claims”;
- The ongoing dispute with contractor Amey over a highways contract. “Negotiations are ongoing to resolve the dispute but there remains a risk that Amey could exit the contract which could result in financial liabilities accruing to the council,” according to auditors;
- The Paradise Circus regeneration scheme, for which finances have been restructured following cost overruns of more than £50m. Grant Thornton said “strong management is needed between [the council and its partners] to ensure that no further overspends occur on the remainder of the project”;
- Wholly-owned construction and facilities management company Acivico, which has a new management team after being “poorly managed in recent years”, leading to a £10m debt write-off.
Other risks faced by the council, the letter said, include the potential need to increase employer pension contributions, as well as additional service cost pressures, particularly in relation to social care service.
Grant Thornton also said that a lack of transformational plans within the council’s financial plan for 2019 to 2023 “will become more important in later years as it may become more difficult to achieve significant savings through less ambitious schemes”.
The statutory recommendations outlined by the auditor called for the council to:
- reduce the likelihood of non-delivery of savings plans through “clear plans and robust programme management arrangements”;
- broaden transformational work to deliver savings;
- keep the potential impact of one-off budget risks under close review and develop contingency plans in case they crystallise.
Elsewhere, the report had harsh criticisms of the council’s governance, particularly in relation to the recent industrial dispute with waste workers.
It questioned how much progress had been made since a critical review of governance and organisational capabilities of the council led by former Department for Communities and Local Government permanent secretary Bob Kerslake.
Grant Thornton said: “While corporate management capability and capacity has strengthened, the council has, at times, continued to exhibit the same short-termism and tendency to avoid managing deep-rooted problems that Kerslake identified as being the biggest block to progress four years ago.”
By law, the recommendations have to be discussed by full council within a month, and are set to go before councillors at a meeting next week.
Reacting to the notice, Conservative councillor Alex Yip, said: “The council continues to have a blame culture blaming the background of national cuts, ignoring the fact that these cuts are proportionate to what every other council has faced despite which the vast majority of councils have never had a Section 24 auditors notice, and none have ever had more than one.
“It is this blame culture of the political leadership which continues to hold the city back as excuses are made for poor decisions and no one is willing to accept responsibility.”
Writing in Room151 in 2017, Chris Game, a visiting lecturer at INLOGOV (Institute for Local Government), described a section 24 notice as akin to being “required to wash your dirty linen in public”.
He said: “The recommending…may sound chummy, but it’s the bullet-shaped chumminess of a Mafia ‘message job’.
“Section 24 notices are very nasty, and happily very rare, or were.”
Birmingham previously received two section 24 notices relating to finance and governance issues – the first in October 2016 and the second in July last year.
