Ignore the spin in the latest Shropshire Council media release. The reality is that it is heading for an overspend this financial year of £38.5m (15%). While this can be met from reserves, it would only leave enough money in those reserves to run the council for half a day.
The council hasn’t yet issued a warning of impending bankruptcy (Section 114). That can’t be far away as the council has consistently failed to achieve planned saving targets. Section 114 could lead to the council being run by government appointed commissioners, a huge increase in council tax, or both.
Let us be clear. This mess is a mess of the Conservatives making. The Conservatives have been in charge of Shropshire Council since its inception in 2009. For years the Conservatives strutted with pride that council tax was not being increased without admitting it was reducing the money available for services. For years it has pumped money into environmentally destructive schemes like the North West Road to Ruin (NWRR) and Shrewsbury town centre redevelopment. In the latter case, a rational council would share the burden with the private sector. Instead, Shropshire Council has loaded all the costs on the public sector.
The council has received grants directly from government or indirectly through the now defunct Marches Local Enterprise Partnership. But it has also spent significant sums on consultants to advise the council on capital schemes and on cutting budgets. And is has been too fond of “prudential borrowing” to fund capital schemes. The Tory leadership says this borrowing is capital spending so doesn’t affect day-to-day trophy spending. Of course it does. If you take out a mortgage (capital), you pay it back from your income (revenue). The council even splashed out a couple of million to invest in a pyrolysis plant. No local jobs were created because the plant is in Powys. A vague promise of future income and further plants in Shropshire doesn’t amount to a sound financial investment even if it contributes towards net zero targets. The council has been acting like it has a new credit card and is maxing out spending without worrying about repaying.
The council is now close to denouement after 15 years of mismanagement. Despite the council’s upbeat tone, it is close to not balancing its budget by March 2025. Under the Local Government Finance Act 1988, councils must balance their budget (unlike the UK government). If that happens, the chief finance officer (Section 151 officer) must issue a Section 114 notice declaring the council cannot balance the budget.
Clearly, the finance people in Shirehall don’t think the council is at this stage yet. But other councils have usually issued a warning of the danger of a Section 114 notice at this point. The current central estimate of the overspend is £38.5m. It could be as low as £31.5m but might be as high as £73.8m. The asymmetrical range of estimates for overspending suggests the overspend might be higher rather than lower. An overspend by £38.5m can be covered by current reserves but that will leave just £313,000 in the bank. That’s enough to run the council from breakfast until lunchtime on a Monday.
The council leadership, under the slogan of “Getting Leadership Right”, is confident that delivering “identified” savings, savings yet to be identified and savings that weren’t made last year will bring the finances under control. The council has always been overoptimistic about the level of savings that can be achieved. Its projections of savings have been more spin and style than achievable targets.
This financial mess does not just come from local Conservative mismanagement. Conservative governments have squeezed local council funding knowing that councils will get the blame for declining services not Westminster. Shropshire Council leaders will be hoping that Rachel Reeves will give more money in her October budget. That’s not looking likely.
The blame game will come. The Conservatives routinely sneer at opposition groups saying they haven’t come up with a workable alternative budget. It isn’t possible for the opposition to produce an alternative budget unless they are allocated significant officer time. That time is never forthcoming. The alternative budget exercise does no more than create a stick with which to beat opposition councillors.
What happens if a Section 114 notice is issued? Usually, the government will appoint commissioners to take over running of the council bypassing the elected leadership. More money will need to be found. Several councils have raided their capital reserves for day-to-day spending, permitted if the secretary of state issues a “capitalisation direction”. But Shropshire Council spent its capital reserves on the Shrewsbury shopping centres and there is very little left in the pot. The alternative is to raise council tax. Normally councils can’t raise council tax by more than 5% but the government has allowed increases of up to 15%. That’s what we might be seeing in April 2025.
The pretence that everything’s ok will no doubt continue until the council elections next May. On the one hand this could be seen as a ploy to retain control. On the other, if they lose control, what a marvellous and classic Tory opportunity (like their government partners before them), to point the finger of blame on to whichever party takes over.