Medway Council: Officers say drastic cuts may be needed to avoid bankruptcy

Officers have warned Medway Council is “very likely” to go bankrupt without drastic changes as they predict an overspend of £11.2 million.

The budget is due to be discussed at cabinet next week and papers released today say the authority might need to immediately stop some or all non-essential services, limit spending to the legally required minimum levels, freeze recruitment and use reserves.

The report says some of these measures would have to be taken immediately to prevent the council having to issue a section 114 notice, which effectively declares it bankrupt and requires the government to intervene.

The second round of revenue and budget monitoring for the current year predicts the authority will overspend the budget it set itself in February by £11.2m – largely due to a £9.7m overspend in the children and adults social care department.

However, this is a reduction from the first round in July – which predicted it would overspend by £16.5m – a decrease of £5.3m.

The draft budget for the 2025/26 financial year, however, anticipates the cost of council services and the revenue raised by the council will mean a shortfall of £26.2m without government help or severe cuts.

The report predicts that next year the cost of children and adult services will increase by £16.2m – coming to a total of £340.5m.

This is largely due to demographic growth projections predicting more people will require services and the expected rise in the cost of equipment and materials due to inflation.

Additionally, costs of running the council are expected to rise, with increased staff pay, the MedPay review, and employer pension contributions predicted to add £9.4m to the outgoings.

In February, when Medway Council negotiated exceptional financial support (EFS) with the government it predicted not only would it need £14.7m for 2024/25 but also £16.3m for 2025/26 and £10.3m for 2026/27.

However, the figure for 2025/26 has risen by almost £10m, and the council thinks the gap needed to be filled by the government’s EFS is around £26.2m.

The report outlines how some of the announcements made in the budget, such as the increase in employers’ national insurance contributions and the rise in the minimum wage, will likely make contractors more expensive for the council.

However, it also adds the budget committed to increased funding for potholes, homelessness, and children’s social care which could ease some of the burden.

Additionally, the financial improvement and transformation plan – which outlines how the council intends to save money and become more efficient – is reported to be on track and has already delivered £19m of the £33m million savings target for the end of the financial year.

The draft budget asks members of the council’s cabinet to work to find more savings to reduce the shortfall and also to coordinate with central government about providing further EFS, above what was originally predicted.

In February, Medway Council narrowly avoided having to file a S114 notice after the government granted its request for EFS in return for measures to increase efficiency and a pathway to financial stability.

Prior to this, the authority had brought in the chartered institute of public finance and accountancy (CIPFA) to evaluate the council’s financial position and what savings could be made to balance the budget.

They recommended a number of measures, such as cuts to free swimming and funding for events, but said EFS was required.

The reports are to be considered at the cabinet meeting on November 19, where members will discuss the best route for the authority to take.