Alarm raised over council’s budget gap
CONCERNS have been raised by auditors about the long-term financial sustainability of Merthyr Tydfil Council.
An Audit Wales report for the council’s audit committee on October 12 says that despite a higher than expected Welsh Government settlement, the council’s financial position is still “challenging” and that failure to deliver to budget or make planned savings risks depleting reserves.
In 2019-20 the council had a budget of £120m and it currently employs around 2,600 people, with its fixed assets worth £260m as of March 31, 2019.
The report said of Merthyr Tydfil: “While the council’s medium-term financial plan sets out its forecast budget deficits, it does not set out how the council is going to quickly improve its financial sustainability.”
The council’s medium-term financial plan (MTFP) in March 2019 projected a 2020-21 deficit of £8.1m, which the Audit Wales report said was “unprecedented” for the council; the projected deficit for the three-year period to 2022-23 was £15m.
But the council received a 4.8% increase in its funding from the Welsh Government for 2020-21 and a cabinet report from January this year shows this increase contributed in large part to the council’s projected deficit for the year reducing to zero.
The report said the council needs to consider how to meet its longer-term budget gap, adding that the council has implemented and continues to explore options to improve its financial resilience.
Fluctuating budget
The Audit Wales report said that the
performance
against council’s performance against budget has fluctuated in recent years and it has therefore used a significant amount of reserves to finance the shortfall.
Finding savings to reduce the budget gap in the medium to long term
The report added that the council needs to identify and deliver recurrent efficiency savings which will help to reduce the budget gap over the medium to long term and that while the council has a good track record of delivering savings, the magnitude of its financial deficits makes it difficult to achieve a sustainable financial balance.
Strengthening low level of reserves
The council is taking action to strengthen its low level of reserves and improve its financial resilience to unforeseen budget pressures.
The council held £12.6m of usable reserves on March 31, 2019 and the local authority’s reserves policy states that these should remain at 3.5%-4% of the annual budget net revenue spend.
The latest in-year forecasts suggest that the council will not need to use its reserves to that extent and the reserves may grow.
Low level of borrowing and no borrowing for commercial activities
The council also has a relatively low level of borrowing and interest costs and has no borrowing to fund commercial activities.
As at March 31, 2019, the Audit Wales report said the council’s borrowings were the lowest of all the councils in Wales, but that this is not unexpected given the size of the council, with borrowing costing the council 6% of its revenue budget that year.
The council will be exploring opportunities to increase its income generation, which may include commercial activities.