Damning report slams council’s ability to manage money
The authority is accused of not doing enough to reduce overspending
A damning report has slammed Southampton City Council’s ability to manage money and has said it is not doing enough to reduce overspending.
The council’s external auditor said the council “has not been able” to manage its financial “sustainability” since 2022/23 due to overspending and reserve reduction, and has warned about the possibility of effective bankruptcy.
It was also revealed that the council did not have “proper arrangements” in place in 2022/23 and 2023/24 to enable it to “plan” and “manage” its resources to ensure it could continue to deliver its services.
The external value for money report made by the external auditor Ernst and Young LLP said the administration’s inability to manage its financial sustainability was “the evident root cause” of the overspending and reduction in reserves since 2022/23.
According to the report, slower-than-expected progress was made through to December 2023 when the council was focused on the in-year budget position for 2023/24. It was able to reduce the forecast overspend from £21 million initially, down to £13.9 million overspend forecast at the end of November 2023.
But the report said “this is still an overspend” and “more savings need to be identified” to reduce the reliance on reserves, given that the expected drawdown on reserves by the end of 2023/24 is estimated to be £82.9 million since 2021/22.
The report pointed out that “limited progress” was also made on finances from 2025 onwards.
It added: “As of December 2023, the council had not made significant in-roads into the projected gaps for 2024/25 and beyond. There was an expectation of developing a transformation plan that would establish different ways of delivering services and reducing costs.
“Such a plan is still in development. Savings have been made through cost control and generating additional income, rather than transforming the way services are delivered.”
Despite “better progress” being made in January with workshops focused on challenging the achievability of the savings, work still needs to be done to present a “robust” business plan and “achievable” savings figures.
To achieve financial stability, the report said the council needs members and officers to “work together” and take “difficult” decisions because “it is hard to envisage a scenario whereby they will not involve decisions to increase the council’s income and to reduce costs through curtailment of services”.
It is also suggested that if the council wants to “have a chance” and succeed with government support, they have to demonstrate that their plans for improving the council’s financial position are “robust”.
It also needs “positive” outcomes to provide the Department of Levelling Up, Housing and Communities with the confidence that providing such support “is not just a short-term solution”.
However, if support is not received, the report said that a balanced budget can’t be presented, and a Section 114 notice – effectively bankruptcy – will be necessary.
In regards to the recent change in Southampton leadership, the audit firm said new leader Cllr Lorna Fielker “appears” to be “engaged”, “understands” the council’s financial position and is “committed” to driving the council to “resolve its financial situation”.
Based on the city council’s work performance, auditors recommend the council make sure all savings proposals are being considered so it can reduce the reliance on reserve, deliver a “robust” and “achievable” savings plan, and demonstrate they can control expenditure and work in line with the proposed budget – which will be public next Tuesday (February 13).
Currently, Southampton has agreed to sell off assets as part of a programme that is set to raise up to £85 million over the next two years.