Southampton council: 'Real' prospect of needing Government support

Updated published accounts say there remains a 'real' prospect of both asking for more cash and issuing a bankruptcy-style notice, which would restrict spending.

The authority has set out to save £20.9m this year - with around £5m saved so far - and then faces a budget black hole of £46.1m in 2024/25.

READ MORE: Council overspend is £16m as opposition hit out at 'glacial' progress

It comes after a previous warning the council could issue a section 114 notice indicating its income does not meet its spending.

External auditors have said in a new report they are not assured this will be avoided.

Bankruptcy-style notice 'not unforeseeable'

Executive director Mel Creighton - in charge of finance - was quizzed by councillors at the council’s governance committee on Monday about updated accounts for the year 2021/22.

She said: “It is not unforeseeable that we would need to serve a section 114 notice or that we would need to ask the government for exceptional financial support.

“It is really important to note this for ourselves and for officers and people watching this, that this is not about the council’s cash position.

“This is about the council’s project position versus the forecast spending and the reserve we have got to back that up.”

Last August, Bournemouth Christchurch and Poole Council asked the Government for £76m. Others who have asked for help - termed exceptional financial support - include Croydon and Luton.

Exceptional financial support 'may be needed'

The updated 2021/2022 accounts discussed at the meeting said: "There is the possibility that exceptional financial support from Government may be needed and the prospect of a section 114 notice being required in the next 12 months remains real, which has the potential to impact on the level of service provision.

"The council has undertaken cashflow forecasting up to the end of October 2024. Our projections for the revenue budget show that the council has sufficient liquidity over this period."

Ms Creighton told councillors the authority is still facing a “significant” budget deficit for future years but that “work is progressing on closing that budget gap”.

A section 114 notice, akin to bankruptcy and triggering Government intervention, would mean no new expenditure would be allowed, except for funding statutory services, including safeguarding vulnerable people.

The council previously said it needed to save £20.9 million this year but has made progress, cutting this to £16m.

Ms Creighton warned balancing the books may require "a significant drawdown on reserves being required to balance the position".

The leader of the city council, Satvir Kaur, has previously said claims the authority is facing effective bankruptcy are a 'lie'. Her administration has asked Government for fairer funding for local authorities.

Satvir Kaur (Image: Chris Moorhouse.)

When asked by opposition Tory councillor Peter Baillie about the probability of a section 114 notice, Ms Creighton said she was unable to clarify the likelihood of such an event.

She said: “We still have a budget gap. In terms of probability, I can’t tell you because I can’t foresee the future but there are still saving proposals being considered, and there are still saving proposals to come forward.

“However, as it stands today, we have got a budget gap in next year that we do not have the reserves to cover.”

READ MORE: Southampton City Council set to ask Rishi Sunak for cash

'Budget gap significant'

She told the group of councillors - and Ernst & Young external auditor Kevin Suter who was at the meeting - that the forecast position has continued to move in a “favourable position” and that there had been a decrease in the council’s budget shortfall.

She added: “The budget deficit in future years is still significant and work is progressing on closing that budget gap to find savings, identifying and implementing improvement plans including the establishment of the external improvement board to help us along the way.”

External auditor Ernst & Young's report said: "Although the council is aware of their financial position and has put in place actions to address the situation, the actions are still to be embedded and the outcomes are not yet assured to avoid the need for a s114 notice.

"Therefore, there is material uncertainty in respect of the council’s ability to continue as a going concern for the period of 12 months from the date of approval of these financial statements."

It added: "Informal discussions have commenced with Government to appraise them of the council’s financial position and the possible need for exceptional financial support."