Stark warning issued over state of Shropshire Council finances with 'no cushion'

The warning comes in a progress review carried out by the Local Government Association (LGA) - following up on a review from June last year.

The council has set a target of saving £51.390m to deliver a balanced budget for 2023/24.

The LGA team's latest examination of the situation took place in March and its findings were published earlier this week.

It outlines the severity of the situation, warning of the perilous position facing the authority.

It says that even if the council manages to make 95 per cent of the £51.3m of savings planned this year, it will still need to exhaust all of its general reserves - and would be risking future insolvency.

It states: "The council and the peer team recognise that the efficiencies of £51.390m required in 2023/24 is extremely challenging for the council, following an overspend in 2022/23 which has further impacted its room for manoeuvre.

"The council has very little remaining in its general reserves to cushion the impact of under-delivery, and will require the delivery of at least 95 per cent of these savings in order for it to avoid depleting its reserves to a level which seriously jeopardises its financial solvency.

"This is a position which leaves no room for under-delivery."

The review says there is 'no cushion' for the council in making the targeted savings, but highlights the difficulties posed in achieving its aim.

It uses the example of previous years – where it says the council made only 82 per cent of its savings target in 2017/18, and just 68 per cent in 2022/23 – to illustrate the difficulties posed in realising the 95 per cent target.

It also raises concern that the options for savings "would normally be options which would take more than one year to roll-out".

The report says that longer term plans for sustainable finances in future years were welcome, but that all of the council's attention must be on the savings for the current year, to avoid the threat of insolvency.

It states: "Not delivering against the financial programme it has identified for 2023/24 is a serious threat to the council’s financial sustainability and its ability to balance its 2024/25 budget."

The review also highlights concerns over the ease of making the savings targeted.

It states: "Additionally, the peer review team were concerned that some of the savings identified were costed on the basis of delivery from the start of the financial year, and yet are programmed to start mid-year."

The report also sets out the state of the council's reserves – which are used to meet any shortfall in the budget.

It states: "Addressing the 2022/23 ‘best estimate’ overspend through utilising £10m from general reserves would leave the council with reserves of just £5.6m (two per cent of the council’s revenue budget), a significant risk for its ability to address any unanticipated issues.

"Shropshire Council recognises that the position of its reserves exposes it to great risk, and that it has less reserves available compared to unitary councils of a similar size.

"As part of the 2023/24 budget, it plans to contribute £19.7m into the General Fund Balance. The council is planning to rebuild its General Fund Balance and considers that between 5-10 per cent of its core spending power – in 2023/24 between £13m (at 5 per cent) and £26m (at 10 per cent) – would be prudent.

"However, it is aiming to have a general fund reserve position of at least £30m – and increase this through the medium term.

"The peer team underline the importance of this for the council and that it must deliver on its plans to address this and build its reserves to a more appropriate level."

The report also sets out the difficulty faced in meeting the 95 per cent savings target.

It states: "Shropshire Council is aware of its previous track record in the delivery of savings and when reviewing its performance shows that in delivering savings of £10m to £15m per year the percentage achieved has dropped consistently from 82 per cent in 2017/18, and is at around 68 per cent in 2022/23.

"The peer team consider the delivery of a minimum of 95 per cent of savings programmes to be a challenge for most councils, and given Shropshire’s past performance this will be a significant issue for it to address."

It concludes that finding the savings is "absolutely critical" for the council.

It states: "Delivering the efficiency programme is the top priority for the council this year – it is absolutely critical for the council and not doing so impacts on its sustainability in particular its ability to balance the budget in 2024/25."

Responding to the report Councillor Gwilym Butler, Cabinet member for finance and corporate resources, said they understood the scale of the challenge are are confident their plans will work.

He said: “We as a council already have a clear plan in place to address our financial position – so, we intend to stick with the current plan, which has been endorsed as appropriate and correct, and deliver to that. There is no need to develop a new plan in response to the recent LGA follow up report.

“We have welcomed this follow-up report, further to the LGA financial peer review last summer. Crucially, it confirmed that the overall direction and approach that we as a council are taking is necessary and correct – but agreed that it is highly challenging.

“The review last summer helped us to reshape our medium term financial strategy, and the medium term financial strategy (MTFS) now sets out how we contain forecast spending and remain within budget in the current year. While the scale of the challenge in 2023/24 is substantial, delivery secures a stable and more sustainable foundation to our finances.

“We have always been very open about the size of our financial challenge, facing it as we do at a time of high inflation, growing demand and pressures in many services. Many other councils are in a similar position; now or looking ahead to next year. Despite these challenges, we have secured a number of key successes in recent years, and the broader financial position (for example housing, schools, and capital budgets) are already healthy and where we would want them to be.

“These are all reasons why we are going through a transformation programme, working with our external partner PwC to help secure our baseline budgets, as well as changing the way we work as a council to ensure we can thrive in the future.

“We will remain clear about the scale of the challenge, and we are confident we can succeed.”