Middlesbrough Council is at “significant risk” of exhausting its usable revenue reserves this financial year (2023/24) – leading to a situation that would require a section 114 notice to be issued.
The authority is forecasting an overspend of £11.563m against its 2023/24 budget at quarter one.
This overspend would eat into Middlesbrough’s “critically low” usable revenue reserves position of £14.8m, exhausting the council’s unrestricted usable earmarked reserves of £2.788m as at 31 March 2023, and significantly depleting its General Fund Reserve of £12.041m.
A revenue and capital budget report to be discussed at a meeting of the council’s executive next week (23 August) states that “urgent management action is required to reduce expenditure and the forecast outturn within budget”.
Should the finances not be controlled, the report suggested that the council would seek exceptional financial support from the Department for Levelling Up, Housing and Communities (DLUHC) “in order to meet unmanageable financial pressures in the short term”. This would be the step taken before a section 114 notice would be issued.
On this possibility, the report stated: “In practice, [seeking exceptional financial support] presents an intermediate step to avoid a s114 scenario and will be considered further if required. This action would inevitably result in an escalation of intervention by DLUHC in the council’s management and administration. Further, the consequences of issuing a s114 notice are very serious and significant and would result in the cessation of all but the minimum level of expenditure to meet the statutory minimum level of service and council liabilities and the need to develop and deliver a council-wide financial recovery plan.”
Preliminary discussions with DLUHC officials have already taken place to advise of the financial challenge and the possibility of requesting exceptional financial support before the end of the current financial year.
The projected overspend for 2023/23 largely relates to service directorate budgets, with children’s social care expenditure levels “the single biggest area of financial risk for the council”. Expenditure in this area “could rise further without more robust control being exercised”, the report said.
Demand for adult social care was also a major contributing factor in the projected overspend, along with home-to-school transport costs and homelessness provision. The report also noted the impact of inflation and uncertainty around the pay award for local government services employees.
Management actions have already been implemented from the start of the 2023/24 financial year, the report noted, with further actions outlined. Cuts totalling £2.557m have been identified and quantified so far.
“Rigorous” spending restrictions have been implemented with effect from 1 July 2023 and will remain in effect until further notice, the report noted, while “robust” financial recovery plans are being developed across the council “to contain expenditure within the approved budget”.
The report provides a stark warning of the seriousness of the financial situation facing Middlesbrough Council, but said there was still time to avoid a section 114. “There is significant importance on taking early and robust management actions whilst there is still sufficient time in the year for those actions to realise a meaningful financial impact and to avoid the statutory requirement for the s151 officer to issue a s114 notice in the event that expenditure cannot be contained within available resources,” the report stated.
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“It is critical that expenditure is contained within the approved revenue budget of £126.354m to stabilise the council’s financial position and provide a basis from which to rebuild reserves from the current critically low level.”
The report recommended that all officers and elected members “work closely and collaboratively together immediately and at pace” in order to control over expenditure within the approved budget. A number of all elected member briefings are being planned to help facilitate this.
The report also said it was “essential” that transformational plans are developed to enable the delivery of the council plan priorities “that are affordable and financially sustainable over the medium term”.
The replenishment of revenue reserves over the period of the MTFP will be also be essential in order to “rebuild and strengthen” the council’s financial resilience.
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