What is city council’s plan for balancing the books?

In March, Nottingham City Council will present its final budget and plans to balance its books. Overlooking everything are the watchful eyes of the Government, with an Improvement and Assurances Board scrutinising operations following the collapse of Robin Hood Energy.

ACCORDING to the Institute for Fiscal Studies (IFS) local authorities across the country have been grappling with “unprecedented” financial pressures and service responsibilities.

These pressures have only been compounded further by the pandemic, which has cost the city more than £66m in the most recent financial year alone, £16m of which must be covered by the taxpayer.

Much of the council’s budget now goes towards its statutory services of which it has a legal duty to provide.

Adult social care and children’s services take up roughly 60 percent of the council’s budget, with more than 700 children in the authority’s care at the time of writing.

Government grants typically supported these efforts until 2010, and cash injections have been declining ever since by roughly £100m, or an estimated £427 per person, every year in the city.

Local authorities are now required to raise cash for statutory services through alternative means, which usually means putting up council tax. But Nottingham is almost “uniquely challenged” in this, according to professor Peter Murphy at Nottingham Trent University’s business school, with tight city boundaries proving a problem.

This is because the yield from council tax depends upon the size of property people own, and properties in Nottingham are generally much smaller than in the suburban districts and boroughs, so the tax yield “is hurt”.

Governments typically operate on two types of regime – grant-based and council tax-based.

Nottingham performs better on the former due to its high levels of deprivation.

Clive Heaphy, interim corporate director for finance at the council, says: “Factually, yes, we are significantly worse off than we were.

“The gains are quite small now compared to the losses.

“Every authority is feeling the pinch in the same way and that is unlikely to ever come back.

“There was over time a move towards less reliance on grants and more reliance on council tax and business rates. That has benefited authorities with a high tax base, and as you know ours is quite a low base here in Nottingham – we’ve got a lot of Band A and B properties.

“Out of 125,000 chargeable properties, 100,000, 80 percent, are in Band A and B and it is unusually low. So, as governments move towards a system where it relies on council tax, we’ve done worse than other local authorities.”

The Labour-led authority has consistently shouted from the rooftops about its financial situation and the impact of such a regime change.

However opposition councillors argue it is itself largely to blame.

This became apparent upon the collapse of Robin Hood Energy.

The energy firm began life from 2015 with lofty ambitions to tackle fuel poverty, create new jobs in the city and take on the big six energy firms, including British Gas.

At its peak it boasted more than 125,000 customers, but by January 2020 it had crumbled into administration.

The council’s total losses are estimated to be in the region of £38.1 million.

That very year, just as the coronavirus pandemic emerged, its hopes for the Broadmarsh Centre came

crashing down.

The pandemic was the final nail in the coffin for former owner, shopping centre giant Intu, which was in the process of demolishing the centre and building it anew.

The city council lost around half of the £18m it had invested in the site.

Following the failures in Robin Hood Energy a public interest report, conducted by independent auditor Grant Thornton, revealed how the council continued to prop up the energy firm despite “its deteriorating financial performance and therefore its inability to make repayments”.

The council had invested £43m of public funds into the failing firm and the auditor accused the authority of “institutional blindness”.

As a result the Government appointed an independently-chaired Improvement and Assurances Board and balancing its books is now a legal duty.

If the council fails to keep the Government happy, Whitehall may send in commissioners to take control.

The city council established its recovery and improvement plan – a the name of which was changed this year because it had the initials “R.I.P.” – in January last year to set out how it aims to reach financial stability over the next couple of years.

The next few months are vital for the council.

A newly drafted budget, which is currently under consultation, has proposed savings of £28m for the 2022/23 period, rising to £38.1m in 2025/26.

Some of the most significant cost pressures come from children’s and adults services and sit at £14.1m in 2022/23, before rising to £34.3m in 2025/26.

A total of £3.9m of the savings will require public consultation, including separate consultations for the closure of the children’s centres.

The final decision on the budget and council tax is set to be made in March.

It all comes as part of the council’s road to recovery as it seeks to balance its books, but how likely is it that Government commissioners will be sent in?

Everything was going fairly well up until recently, when the interim director of finance and Section 151 officer, Mr Heaphy, discovered a series of illegitimate payments, totalling £15m, dating back to 2014.

A legal notice was then served to the council because these payments were unlawful and involved the transfer of funds from Nottingham City Homes’ Housing Revenue Account (money from which must go towards council housing stock and tenants), to the general fund (money from which goes towards day-to-day services).

The Post now understands some of the money would have been spent on homelessness services, which could have been seen as “morally justified”.

Andrew Rule, one of only two Conservative councillors on the council, described it as “a way of processing money from a ringfenced account, spin-cycling it through an intermediary, and recycling it into the general fund”.

This has thrown a spanner in the works for the council and will absolutely not sit well with board chairman, Sir Tony Redmond, who was already running out of patience.

One of the positives to take from the ordeal is that the council has been very open about it, with council leader and Dales ward councillor David Mellen taking the stance that executive councillors are indeed taking responsibility for the mess in doing so.

The next step for the council is to find a way of paying the £15m back, as well as devising a medium-term financial plan, which will set out its finances for the next four years.

Ultimately only time will tell, but the Labour executive remains adamant that it will retain control of operations.