Surrey, UK’s richest county, hit by £100m cash crisis - The Times

Nine out of ten authorities will go over budget

Surrey’s usable reserves have been vastly depleted since 2013

Britain’s richest county is facing a £100 million cash crisis as scores of councils struggle to close budget deficits, an investigation has found.

Surrey county council has one of the worst financial shortfalls in the country, according to research seen by The Times. The disclosure came as nearly every part of England warned of tax rises to make ends meet and half of local authorities prepared to cut services for children. Nine out of ten councils will be millions of pounds over budget by the end of the financial year.

Surrey’s woes will alarm Downing Street as it is a solidly Conservative council and the county is represented at Westminster by seven senior government ministers.

This week the Tory-run Northamptonshire county council declared itself in effect bankrupt, prompting new fears about the impact of cuts on local authorities. Northamptonshire’s officers issued a draconian Section 114 notice, the first in England in almost two de- cades, banning almost all new spending. 

Surrey has one of the worst financial outlooks of any area of the country, research by the Bureau of Investigative Journalism reveals. Council documents warn of a £105 million funding gap — the difference between the funding it expects to receive in the next financial year and the money it needs to spend. It is the largest deficit reported by any of the 150 English local authorities whose finances have been analysed by the bureau. The average is £14.7 million. When calculated as a percentage of its budget for the coming financial year, Surrey’s funding gap is 12.8 per cent, the ninth highest in the country. The average is 6.9 per cent.

The council, whose core government grant has been reduced by more than £200 million since 2010, is exhibiting several of the other signs of financial stress demonstrated by Northamptonshire before its warning. Surrey’s usable reserves will have more than halved between 2013 and 2019, falling from £170.3 million to £63.2 million — far lower than its funding gap. On Tuesday night the council approved a new three-year budget, including the use of a further £23.6 million from its reserves despite being warned last year by the accounting institute Cipfa that its reliance on short-term fixes was not sustainable without drastic savings.

Like Northamptonshire, Surrey has a low level of emergency reserves and is overspending — by £11 million this financial year.

The council told The Times that it was under pressure from government cuts and increased demand for services. “We’ve agreed a three-year budget despite the severe financial pressure we and councils across the country are under, due to rising demand for our services and falling government funding,” a spokesman said. “We’ve been successfully managing the growing need for adult social care, children’s and other key services partly through making savings of £540 million since 2010 and have made sure we keep within our overall budget.”

Local government sources insist that, although Surrey and other councils are in financial trouble, another Section 114 notice is unlikely. A government source said that Surrey was not one of the councils on its radar as being at risk of imminent failure.

At a meeting on Tuesday, David Hodge, the council’s Tory leader, attacked the government for reducing funds. “We’re facing the most difficult financial crisis in our history,” he said. “The government cannot stand idly by when Rome burns.”

Surrey has the greatest number of high net-worth individuals of any county, more than Greater Manchester, Kent and Hertfordshire. Its MPs include Philip Hammond, the chancellor, Michael Gove, the environment secretary, and Jeremy Hunt, the health secretary.

The research came as about 95 per cent of councils prepared to increase council tax, with three quarters likely to adopt the maximum 5.99 per cent rise, a cost of £95 more a year for the average Band D home.

The State of Local Government Finance survey conducted by the Local Government Information Unit found that eight in ten councils lacked confidence in the sustainability of local government. Two thirds will have to use reserves to make ends meet.

For the first time, councils said the greatest immediate pressure on their budgets came from children’s services, with 31.8 per cent saying finding money for children was their biggest concern, up from 7 per cent last year. The government announced an extra £150 million for adult social care in the coming year this week but no more funds were allocated to children’s services.

Of the 101 councils that have released their proposed budgets for the coming year, 57 are planning to cut children’s services. Surrey’s 2018-19 budget includes a £25.6 million cut to its children, schools and families budget and an £18.7 million reduction in its spending on adult social care.

Canary in the coalmine
Surrey first raised the alarm about its deepening financial woes last year when councillors threatened to raise council tax by 15 per cent in a county-wide referendum.

They abandoned the plans amid a political storm over dealings with ministers and advisers. Theresa May was warned by senior local government figures that she risked Tory councils going bust if she did not give them more money.

Simon Dudley, the leader of neighbouring Windsor & Maidenhead, said his council was the “canary in the coalmine” for a looming funding crisis.

In the past year, Surrey has faced higher demand for social care for children and adults. Its core grant from local government has been cut by £200 million since 2010.

The number of people demanding help for learning disabilities has risen by 46 per cent — the highest of any local authority — while there has been a 9 per cent rise in the number of elderly people supported by the council.

The options are running out
Northamptonshire council was described as “the worst run in the country” by Philip Hollobone, the MP for Kettering, but its leadership says that the government had been told it was about “to fall over the edge of a cliff”.

Having projected a spend of £706 million at the start of 2016-17, it spent £749 million. Its increase in spending on agency care workers has been higher than anywhere else.

It owns 14 farms, and had earmarked land for a £12 million sale which fell through. Reserves meet only half of a £21 million overspend for this year. Mark McLaughlin, the finance director, has recommended selling its £53 million headquarters, which opened in October, and leasing it back. There is no guarantee that a buyer could be found and the cash secured in time to make up the shortfall. Similarly, the sale of land would leave £9 million outstanding.

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