Peterborough ‘will break spending rules without financial support,’ auditors conclude

The city council faces an “unsustainable financial challenge” which if “left unmitigated” will see it unable to prepare a balanced budget - a legal requirement, according to Ernst & Young.

The firm said the authority would be at “significant risk of issuing a Section 114 notice” which would prevent expenditure beyond the funding of statutory services such as social care.

It could also lead to government intervention, a fate which befell Northamptonshire County Council.

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The dire warning comes despite Peterborough City Council receiving ‘exceptional funding support’ from the Ministry of Housing, Communities & Local Government earlier this year which allowed one-off borrowing of £20 million to balance its books, with the Government in return instigating a review into the council’s financial management.

Details of the review were announced last week, with the council hopeful that it will help move the authority “onto an ongoing sustainable financial footing”.

The report from Ernst & Young states: “Whilst we have found that the authority has responded appropriately to its deteriorating financial position, we have serious concerns about the authority’s current and future financial resilience and ability to remain viable following the Covid-19 outbreak.”

It adds: “The combined result of increased expenditure and reduced funding poses a significant challenge for the authority over the next three financial years.

“If left unmitigated this will present an unsustainable financial challenge for the authority, which will place the authority at significant risk of issuing a Section 114 notice.”

The council has had its government funding slashed by more than 70 per cent over the past eight years, on top of rising demand for services.

It believes that if it received the average level of funding per population then it would be between £11 to £13 million better off each year.

A spokesperson for the authority said: “The council has been open about its ongoing financial position and engaged with MHCLG early to discuss solutions. However, the council does have an ongoing funding issue that it is working with MHCLG to resolve.

“The council will have a MHCLG review of its finances and governance including the route to sustainability, which will be started in July and the outcome reported by the Secretary of State in the early autumn.

“In addition to this, the council is also undertaking an LGA (Local Government Association) Corporate Peer review over the summer to ensure that it is following best practice and value for its stakeholders.”

The council is currently forecasting a deficit of £26.8 million for its 2022/23 budget (16 per cent of its expenditure), rising to £29.8 million the year after.