AUDITORS have warned Somerset Council it could be the next authority after Birmingham to go bankrupt unless it reduces a potential £130 million overspend it is facing in the next two years.
The council has estimated a budget gap of £80 million in the 2024-25 financial year, and another £50 million in 2025-26.
The warning came barely six months after the Liberal Democrat-run council was created in April.
Council deputy leader Liz Leyshon acknowledged the authority’s ‘projected overspend’ had to be significantly reduced.
Creating the unitary authority to replace the former county and four district councils was intended to save £18 million a year on the cost of running local government, but instead it has been facing a budget black hole.
Although the auditors have not yet taken formal action against the council, they have said significant changes were needed in the budget forecasts if it was to avoid being issued with a Section 114 notice – a legal move which effectively declares bankruptcy.
Cllr Leyshon said she ‘understood people’s disappointment’ over such dire news coming so soon after the new council had been formed.
She said: “We could not have gone into local government reorganisation at a worse possible time. “When business cases were written we were in a different place.
“If we cannot get the overspend down in this year then we will not be able to set a budget for next year.
“We need the Government to take note and we need to do our own work in reducing the overspend.
“We will have some draw on reserves this year but we cannot cover overspend by pulling on reserves, you only spend your reserves once.
“We have delivered savings when we set the budget for the current year in February, but the pressures are much, much greater and the savings needed are on the same scale.”
Cllr Leyshon said if a Section 114 notice was issued the council would lose the ability to commit to new spending and take decisions.
She said although it would be the equivalent of bankruptcy, councils did not close down in the same way as a company would, and instead the Government would send in commissioners to run the authority.
Birmingham City Council declared itself effectively bankrupt in September, while Cotswold District Council has recently warned it would have to take tough decisions to avoid bankruptcy.
Conservative opposition group leader in Somerset, Cllr David Fothergill, who led the authority prior to reorganisation, said he was ‘disappointed but not surprised’ at the council’s plight.
Cllr Fothergill said last year’s elections had seen ‘a loss of momentum, urgency, and expertise’ in taking the unitary project forward which had not been regained.
He said: “I think a 114 bankruptcy notice is possible in the next couple of years.
“The way to avoid that is for the leadership and the administration to get a grip of the challenge and to really make some tough decisions because if you do not, the council will fail and that will have a devastating impact on the people of Somerset.”