A South West council has reported a dramatic turnaround in its 2018/19 finances after a series of in-year measures turned a projected overspend of £12.1m for the last financial year into an underspend of £5.9m.
Somerset County Council said the £18.0m turnaround was the result of a “tighter financial grip” incorporating additional in-year spending changes agreed in September that included savings of £9.4m, additional funding of £2.8m and extra grants of £931,000. The county’s net budget for the year was £317.9m.
Somerset was one of 11 councils listed by the BBC last week as being at danger of running out of reserves within four years, in a report described as “misleading” by a number of those named.
In a report set to be presented to a meeting of Somerset’s cabinet next week, interim finance director and section 151 officer Sheila Collins said the turnaround in the council’s financial position had also included a technical adjustment to the authority’s minimum revenue position.
That resulted in a saving of almost £4.2m.
She added that the authority had also “recognised the unsustainable low level of reserves and the need for the council to take in-year opportunities to improve the position to secure the longer term financial sustainability” by ending the year with a general fund balance of £16.4m compared with £12.2 at the beginning of the year.
Figures contained in the report to Monday’s meeting showed that Somerset’s adult social services had the biggest underspend, at £6.1m from an approved total budget of £132.2m.
Economic and Community Infrastructure services delivered an underspend of £3.14m against a budget of £65.0m.
Collins’ report said that, overall, £9.7m of the originally-mandated £13.4m savings for 2018/19 had been realised, representing 72% of the figure agreed by a full council meeting in February 2018.
It said 98% of the £12.8m of additional savings agreed by the cabinet in September last year had been delivered.
The report added that council’s ongoing Financial Imperative Programme, set up to monitor financial performance and the delivery of in-year efficiencies, had identified the delivery of a further £15.6m in savings for the 2019/22 Medium Term Financial Plan period.
Collins, who was appointed to her interim role in February, said the authority’s outturn performance had been a “dramatic” transformation that gave the authority a more positive financial outlook than had been the case for some years.
“That all of this has been achieved is a tribute to staff, managers and all county councillors who have contributed to a turnaround that places the council in an improving and more resilient position,” she said.
“However, it remains imperative that this tighter financial grip is maintained whilst the council further strengthens its financial foundations.”
Graham Liddell, managing director of public sector financial consultancy LPFG said that reducing minimum revenue position – which delivered savings of £4.2m for Somerset – could store up problems for the future because it was the mechanism by which local authorities spread the cost of capital by more than one year.
“Reducing MRP is something that many local authorities are using to address current budget problems,” he said.
“Local authorities set their own MRP and it is often seen as an easy way to cut costs because of the wriggle room in the rules: local authorities have a duty to have regard to statutory guidance on setting MRP and are required to charge an MRP which they consider to be prudent.
“Sometimes reducing MRP is perfectly fine, for example where MRP is genuinely higher than it needs to be, but authorities need to be careful.
“Capital costs are, like revenue costs, real and will have to be paid sooner or later. In other words, paying less MRP now means paying more later.”
