Council warns it may be forced to cut services after Covid-19 hit to finances

Alan Waters, leader of Norwich City Council. Pic: Jeff Taylor.

Alan Waters, leader of Norwich City Council. Pic: Jeff Taylor. - Credit: Archant

A Norfolk council has warned it is facing “substantial financial challenges” and may have to make cuts to services due to the impact of the Covid-19 lockdown.

Norwich city council leader Alan Waters said the authority needs to save £7m over the coming year and £14m in the medium term.

And he described the council funding model as “broken” and “a pack of cards about to collapse”.

But the city council has now revealed further details about the financial challenges it faces, in a report published on its budget setting process for the next year.

Councils are legally required to balance their books - and if they are unable to do so they must declare effective bankruptcy, by issuing a Section 114 notice.

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Warnings that the council faces a “very precarious position” if it is forced to draw on its reserves - essentially spending its savings - have sparked concern that local services risk being cut.

And the council has highlighted fears the “single biggest economic downturn in generations” is set to follow the pandemic.

READ MORE: ‘A pack of cards about to collapse’- dire warning over money for councils

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It comes as the government chose to delay proposed longer-term local government financial reforms by a further year.

The Labour-run authority could use £3.8m of its reserves to help plug its £7.2m budget gap this year - but would also have to make £3.3m worth of savings.

And added pressures from the Covid crisis - including loss of income from council tax, business rates and rents - could see city hall lose £14m in the next two years.

The council already needed to find £10m overall savings in the next five years, and says it may now be unable to use reserves to “smooth” this process.

The document, from Hannah Simpson, chief finance officer, stated that the council “continues to face substantial financial challenges” and “huge pressures”.

She added that there was also “unprecedented uncertainty” with funding changes likely in 2021-22.

The council has made savings and found new ways to raise cash, creating £34.7m in the past decade, and been given £1.5m additional funding to deal with the crisis.

READ MORE: Councillor ‘anxious’ to see districts benefit from £7.7m recovery fund

But the spending gap has been worsened by the pandemic and without significant further help the council will dip into its reserves to balance this years budget, risking cuts to services.

During a city council cabinet meeting, held on Wednesday, July 8, Paul Kendrick, cabinet member for finance, said there had been further government funding announced but the council had not yet heard what it would receive.

But Green Party councillor Jamie Osborn said: “Why are some of these savings happening now? We couldn’t have anticipated a pandemic but we have known for a long time that we needed new streams of income other than car parks and that commercial investments are risky. Why has this not happened before?”

The council leader said: “Can I correct you - I won’t say take you to task - we do not know income from car parks is a bad thing.

“It helps to pay for vital services and we had long and careful conversations about investing in commercial estate.”

And James Wright, leader of the Liberal Democrat group, asked whether cabinet would get other opportunities to review the plans.

Ms Simpson said plans would be included in future budget planning documents.

The report stated: “This will leave the council’s budget in a very precarious position, without significant reserves to absorb future in-year shocks - perhaps from a second wave of Covid.

“The council will need to build reserves back up which will mean less money to fund local services.”

READ MORE: Chancellor’s mini-budget welcomed, but warning councils need extra help

She added: “Covid has affected those in the most deprived areas disproportionately. People already in vulnerable jobs have been most at risk of job or income loss.”

She said relying solely on reserves would “reduce the council’s resilience”.

The council plans to review its budgets for services and capital spends, delay projects, and coordinate a senior management taskforce to identify savings.

It has also stopped all non-emergency repairs in council properties during the pandemic.

Other savings plans include spending less on events, pausing recruitment for vacant posts, reducing spending on training, travel and supplies, postponing maintenance, and borrowing.

It could also consider raising fees and charges, increasing council tax and growing the tax base via building homes and supporting businesses - or even reducing numbers of council staff.

But the government is considering plans to prevent councils raising income from commercialisation, so the authority will wait to hear the outcome before investing further.

Options for the budget will be presented to the cabinet in November, and the public will be consulted during December-January, ahead of setting the budget in February next year.

READ MORE: Coronavirus pressure on council coffers cut, but £16m overspend forecast

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