Dire financial position for Peterborough City Council without government help

Addressing members of the Budget Cabinet (October 26), Cllr David Seaton, Cabinet Member for Finance, said: “This is the Medium-Term Financial Strategy Phase One report which comes at a critical time for local government.

“The Council’s financial position is challenging, and a comprehensive approach has been taken to implement a financial recovery programme aided by the Capitalisation Direction.

“However, in the wake of Covid-19 (C-19), it is clear that without additional funding from Government, or the ability to use some of the alternative solutions, the Council will exhaust all reserves in response to the current financial year C-19 challenges and in doing so will be unable to function in the following financial years.

“The financial situation and continued uncertainty in funding arrangements, future demand impacts and recovery from the pandemic mean that forward planning is highly compromised.

“The Council will continue to work hard on the recovery of the financial position, while discussions take place with the Ministry of Housing, Communities and Local Government (MHCLG).

“The Medium-Term Financial Strategy (MTFS) Phase Two report will be published in January, for approval by Council on March 3,  2021, solutions will need to be agreed in advance of this to ensure the Council can legally set a balanced budget.”

At the beginning of 2020, Peterborough City Council had forecast a £14.2m budget gap for the financial year 2019/20, but identified something in the region of £12m worth of savings that could have been made.
Cabinet Member for Finance, Cllr David Seaton and Acting Director of Corporate Resources, Peter Carpenter were both optimistic at the time they would be able to close the budget gap to just £2m by the end of the financial year, and then balance the budget going into 2020/21.
Covid-19 has changed all of that.
Currently the city council is forecasting a 2021/22 budget gap of £35.668m (from a total planned expenditure of £175.820m), rising to £38.584m (from a planned expenditure of £181.733m), in the financial year 2023/24.

Unusually for Phase One of a budget report, given the overall financial position of Peterborough City Council and local government as a whole, the Chief Financial Officer – a position currently occupied by Peter Carpenter – has given an opinion on the council’s position, as this would usually only come in Phase Two.

His opinion is that: “The 2021/22 budget estimates contain considerable risk due to the level of uncertainty of the council’s operating environment, making it problematic to develop meaningful assumptions on which to base income receipts levels in demand-led expenditure budgets.”

Cllr Seaton added: “We’re not alone in facing significant financial pressures as all local authorities have faced similar problems since C-19 began in March.

“The latest analysis published by the Local Government Association identified additional pressures and lost income in excess of £11bn in 2020.

“This includes adult social care pressures totalling £2.3bn, income losses of £1.6bn in respect of business rates and £1.6bn in respect of council tax, with lost sales, fees and charges totalling another £2bn.

“Some of this will have lasting effects for councils impacting base budgets and making it ever-more important that clarity on support from government is received.

“There should’ve been a comprehensive spending review this year, which I had been confident would’ve had a very positive effect for us; but due to C-19 that will not now be possible.

“So instead, the local government settlement will be for a single year and we expect that in December – we’ve deliberately asked government for it to be as early as possible to aid planning for 2021.

“That settlement provides us with a crucial link into our 2020/21 financial strategy as it should give clarity on key areas, including confirmation of grants, timescales for the fairer funding review – we already know that Peterborough is substantially under-funded for a city with our demographics – timescales for the resetting of the business rates baseline, the continuation of the new homes bonus or, details of a replacement scheme, the confirmation of council tax referendum limits and the continuation of business rates pilots, and finally the approval of business rates allocations.

“Only following this provisional settlement will the council have clarity on the level of support it will get from government, and any final deficit amount that needs to be closed.”

Cllr Mohammed Farooq asked: “Where will this lead us in terms of council tax collection, going forward?”
Cllr Seaton replied: “We’ve already seen a 1.9% reduction in council tax collection and a 20.6% reduction is business rate collection.
“Obviously this is causing significant pressure as it affects the council’s two main sources of funding which means a £10m shortfall this year that we’ll have to make up over a three-year period.
“You are right however, as the worry is what the shortfall will be in future years.
“We’re fortunate in seeing growth in the city, growth in the council tax income, growth in business rate income.

“But how much that will be offset by the impact on local businesses that the financial situation will have, is very hard to predict.

“We’ve already given £150 to each household on council tax support, but if more people are made unemployed then those numbers could go up and that’s another worry.

“We have been very careful in recent months in chasing people for council tax and business rates – we’ve really acknowledged that there’s a lot of pressure out there.

“We are just starting to remind people that there are bills that need paying, and how important it is that they do pay their bills because that’s what supports the vital services such as social care, and children’s services.
“As a council, I believe that we must be honest with stakeholders and residents as to the gravity of our financial situation.
“Therefore, we’ve gone out to consultation on Phase One of our budget when many other councils have not – it’s important for all to understand the position so that we can deal with it properly.
“In seeking advice from a range of external professionals who have extensive local government knowledge and experience, we’ve not been afraid to look at outside people coming in to challenge us in asking ‘are we doing all that we can?’.
“We are therefore, constantly challenging ourselves to be efficient and innovative whilst ensuring that our services continue to meet the needs of our residents.”
Leader of the Council, Cllr John Holdich said: “Some of the negative comments made at Full Council last week do have a de-motivating effect on our staff who are working under very difficult circumstances.
“We do need to remind the ‘other side’ that in 2002, they virtually bankrupted this council and then walked away from it because they couldn’t fund a budget.
“They refused to put the rents up resulting in housing transfer having only 40% of our houses deemed as fit.
“If you look at the amount of grant that we’ve lost and the extra services that we’ve taken on, I don’t think there’s another council in this land that could’ve maintained its services as we have, keeping council tax so low.
“And don’t forget, our funding is based on population figures which are probably eight or nine years out of date.”
Cllr Wayne Fitzgerald asked Peter Carpenter: “Are we alone in our approach to MHCLG, and are you sure this is the right course of action?”

Peter Carpenter replied: “We aren’t alone in the course of action that we’ve chosen, but it is very important to note that our stance is in response to MHCLG and their requests to councils four to six weeks ago.
“Up to that time, MHCLG were very focussed on councils not running out of money or have issues with their 2020/21 financial year.
“In mid-summer however, their view changed and they began to say to councils ‘if you have a problem with balancing the budget in 2021/22, come and talk to us about it’, which is precisely what we did – ahead of the game.
“Because we’ve been monitoring our finances on a monthly basis, we were able to show them we would have a problem in 2021/22, therefore it was prudent of us to go and speak with them as soon as possible so that they understood our position.
“As a result of that, we’re at the front-end of the queue of councils talking with MHCLG, although substantial numbers of other councils are now starting to speak with them, and that’s bound to increase over the next month or two.
“What that means in real terms is that we have control over council tax and the business rates and commercial income position, while central government are looking at the wider funding issues of the sector.”
In concluding his report, Cllr Seaton said: “Having delivered such a gloomy forecast, I would like to end with good news.
“The government confirmed on October 20 that our share of the recently announced Additional Funding for Local Government Fund will be £5.7m.
“That means that our overall reserve levels at the end of 2020/21 will rise from the £7.1m shown in this report, to £12.8m – which in turn means our overall C-19 expenditure has been 86% funded and I am hopeful there will further grant announcements next year, so that we can re-build our reserves.”
The Cabinet approved the recommendations for the revised budget.