Middlesbrough Council agree to ask for Government financial support to avoid bankruptcy
Middlesbrough Council's agreed to apply for emergency financial support to avoid effective bankruptcy.
Middlesbrough Council's agreed to apply for £15m of emergency financial support to avoid effective bankruptcy.
Leaders there were warned if they don't approve requesting a bailout - they would become the latest to declare itself bankrupt.
Middlesbrough Council leaders unanimously agreed to seek £15m in exceptional financial support in a bid to balance the books and fund redundancies.
A meeting of the Executive heard the cash would be used to plug a gap of at least £6.3m in the budget for 2024/25 as well funding redundancies in the early part of this year. It could also be put towards delivery of a programme of change aimed at transforming services at the troubled local authority, as well as replenishing its dwindling reserves.
In light of the £15m figure agreed by the Executive, Simon Clarke, Conservative MP for Middlesbrough South and East Cleveland, said “enough is enough”. He repeated calls for immediate Government intervention in the running of the local authority, saying its situation was “untenable”.
Cllr Nicky Walker, Executive member for finance and governance, told the meeting on Wednesday that, due to the position they “inherited”, the council was spending about ten per cent above income. “Just as with any household, that is not sustainable,” she said.
In terms of reserves she said the council has the lowest level in the North East and they could not cushion the budget blackhole of £6.3m. The recent provisional Local Government Financial Settlement did not help close that gap, she added.
Outlining the figures behind the £15m figure total, she said: “There would be £6.9m to cover the current forecast shortfall plus ten per cent flexibility to allow for potential changes that we needed as a result of budget consultation and the final financial settlement which is yet to be announced. The other figures are what we might need to apply for but that is not certain.
“We would need a further £4.6m to reflect forecast timing difference between capital receipts being received and the need to spend on transformation programme and redundancies in the early part of the year. We can’t wait for those capital receipts to be delivered.
“Then £3.5m to reflect the risk of savings not being delivered in the early part of the year so that is a timing issue and we may not have sufficient reserves to cover that. That is not to say we would draw on all of that £15m, that is the amount we would apply for.”
In November, the council revealed plans to hike public charges and sell off buildings in an attempt to save money. The following month, budget proposals were announced with the aim of saving about £14m.
Shortly after, a letter penned by Sir Simon and Tees Valley Mayor Ben Houchen, along with four Conservative councillors, called on the Government to send in commissioners and take over control of the Labour-led council. In response to the latest development, Sir Simon said: “We made that call on the grounds that the council’s dismal financial mismanagement meant it was essentially bankrupt and would need a £6m Government bailout just to continue to operate this financial year.
“Today, it has emerged that the true bailout figure is actually £15m. I’m sorry, this is simply not good enough, and frankly – enough is enough.
“It is plain for anyone to see that the situation at the Council is now completely untenable. Now it is time for independent professionals to be brought in to deliver stability and a plan for recovery for the people of Middlesbrough who deserve so much more than this ridiculous mismanagement of their tax-money.”
Cllr Walker said at themeeting exceptional financial support is not an admission of effective bankruptcy. “It’s a move by which we would seek to avoid a section 114 notice,” she said.
“It isn’t a grant, it isn’t a handout and it isn’t, as has been incorrectly claimed, an emergency bailout by the Government. The Government don’t actually give us any money.
“It is a way to get permission to borrow and spend our own money in a way that national restrictions on local authorities wouldn’t normally permit.” The emergency financial support would take the form of a capitalisation direction enabling the council to treat revenue expenditure as capital and to borrow and repay the amount at a premium rate over a period of up to 20 years.
“It would buy the council time to plug the gap for 2024/25, time to reduce expenditure by way of a transformation programme and avoid the awful consequences of a section 114 notice, ” said Cllr Walker. She added that the cost of intervention would mean £1,000 to £1,500 per day per commissioner which would need to pbe met by the council and people of Middlesbrough.
She also noted they would still be left with a gap in the budget and would also still need to seek exceptional financial support. Mayor Chris Cooke said the £15m would be “akin to an overdraft” and the amount requested is “not necessarily” the amount which would be used.
He added: “It will not be a silver bullet to fix all of the council’s problems, I think that needs to be made clear, but will buy us that time that we desperately need in order to make sure we reach the point of having longevity. This will avoid us going to section 114 which I don’t think people in this meeting or people in Middlesbrough want to happen.”
The Executive meeting also heard from the Middlesbrough Independent Improvement Advisory Board which was appinted to oversee the council’s move to address financial sustainability and cultural and governace issues.
Chair of the board, Wallace Sampson, told the meeting “green shoots” were appearing in terms of improvement but attention was still required in certain areas, particularly in terms of communication between councillors and officers. Regarding its financial position, board member Chris Buss said a section 114 notice would “almost certainly” mean the council would still need to seek exceptional financial support but they would no longer be in charge.
He also noted other councils had received the support but had not used it. “It’s there, it gives you the ability to balance next year’s budget, but you may not need to draw down on it of it or use it,” he added.