Peterborough avoids financial catastrophe from Covid after government rule change

Peterborough will avoid financial catastrophe from the coronavirus pandemic after the Government relaxed its rules on borrowing.
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The Conservative-run city council has been warning for months that it would struggle to balance its budget (which it is legally required to do) after its finances were decimated by Covid-19.

RELATED: Anxious wait for Peterborough council as government Covid-19 funding needed to avoid ‘big cuts’

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Peterborough Town HallPeterborough Town Hall
Peterborough Town Hall

The authority - which has seen its government funding slashed over the past decade on top of rising demand for its services - faced a £37.5 million black hole it needed to plug by April, but chiefs at the Town Hall are breathing a huge sigh of relief after being given additional funding of £4.8 million and the offer to borrow up to £20 million.

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The news has been welcomed as a “great result” by council leader Cllr John Holdich, who said: “This means we won’t have to make large scale cuts this year. Otherwise the cuts would have been catastrophic.”

Cabinet member for finance Cllr David Seaton was equally delighted, adding: “We’ve got what we asked for which is excellent.”

Senior executives at the council have been in regular dialogue with the Ministry of Housing, Communities and Local Government (MHCLG) for the past five months which has involved submitting monthly financial returns for the first time ever.

The result of those discussions was revealed by MHCLG on Wednesday afternoon with the news that additional funding which reduces the budget gap to £13.7 million has been complimented by the Government allowing Peterborough and other hard-pressed local authorities to borrow up to £20 million more.

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This will result in repayments of £1 million a year for the next 20 years, on top of interest.

Cllr Holdich said: “We’ve been working really, really hard to impress on government our situation and we put together a strong case.

“We’ve had to go through the bills to prove to the Government there was nothing else we could do.

“I genuinely believe our officers have not had any sleep! We’ve not tried to have the Government’s leg up - we’ve been honest with them and we’ve got a great result.”

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Borrowing money to pay off a deficit (known as a Capitalisation Direction) is only allowed by the Government in exceptional circumstances.

This was the case last year when the council was allowed to borrow £9 million for redundancies and ‘transformational activities’ which prevented it from needing to dip further into its reserves.

This time around, the council plans to borrow £13.7 million to plug its budget deficit and spend the rest on “transformation activities” post-pandemic.

Before Covid struck the authority was confident of balancing its books for 2021/22 having identified millions of pounds of savings, however, the pandemic has taken a £42.3 million hit to its finances compared to £36.9 million in support from the Government - a gap of £5.4 million.

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The city council is one just a few local authorities to set its budget through two stages, with the first phase late last year including plans to tackle £2.7 million of the deficit.

Proposals which have been approved include a rise in the charge to collect brown bins for garden waste from £45 a year to £50 and the switching off of some street lights between midnight and 5am.

The latest budget proposals will be announced later this week and will include a five per cent rise in council tax - the maximum which is allowed without needing to call a local referendum.

That figure includes a three per cent rise in the precept for adult social care.

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Cllrs Holdich and Seaton are now turning their attentions to the Government’s delayed fairer funding review which will impact the authority’s finances ahead of the 2022/23 budget, although both men plan to have stepped down from the council by then.

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

Cllr Seaton added: “This wasn’t a Croydon situation (where the council declared bankruptcy). We have a low council tax, low property values and lower funding.

“The Government has said we’ve been open, transparent and very professional about this. That’s what our auditors have said as well.”

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Council director of resources Peter Carpenter praised the response from MHCLG, stating: “They’ve been very, very helpful. In the past they’ve been at an arms length but have really tried hard this year to understand. They’ve really upped their game in making sure the sector is fully funded.”

Mr Carpenter said the projected drop in takings from council tax and business rates had not been as bad as first feared when the pandemic struck, with a more optimistic picture on both fronts next year as well.

He added: “MHCLG expects the impact of Covid to be going on at least until June then falling away slightly, but will be keeping it under review.”

Paul Bristow, MP for Peterborough, said: “The council has campaigned for some time for fairer funding for Peterborough and the Government have listened. The support from government shows what is possible when MPs and the council work together and it is crucial for local residents that this continues.

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“Peterborough faces unique challenges associated with rapid growth and it’s so important this is acknowledged by government. This extra support would not have been available if it was not recognised that Peterborough is a well-run city.”

Shailesh Vara, MP for North West Cambridgeshire, said: “This is excellent news and I am very pleased that the minister Luke Hall MP and his civil servants actively engaged with Peterborough City Council and both Paul Bristow and myself.

“I was particularly pleased that the minister was complementary about Peterborough’s administration under the leadership of Cllr John Holdich.

“This financial facility will greatly benefit the city and surrounding area and I am assured by the minister that he and his team will continue to work closely with the council as we move forwards.”