Council abandons ‘undeliverable’ £40m savings plan as financial crisis mounts
More than £40 million of savings that Birmingham city council promised to make this year will not now be delivered, threatening to plunge the local authority into a significant financial crisis.
In an unusual warning based on projections just four months into the 2016-17 financial year officials say the bulk of a plan to reduce expenditure is “now not considered to be deliverable” and the risk of a budget overspend is “substantially higher” than in recent years.
The council may be forced to dip into a £60 million contingency fund in an attempt to balance the books, and a search for new savings is underway.
Birmingham council expects to have to cut spending by about £250 million by 2020 to reflect reduced Government grant, on top of about £700 million already taken out of the budget since austerity hit home in 2010.
A requirement to produce a balanced budget over the next four years is one of the main stipulations of the Birmingham Independent Improvement Panel which will meet next month to consider whether the council is on course to deliver reforms set out in the Kerslake Review.
A critical report could re-open the possibility of direct Government intervention in the running of the council, possibly through the appointment of commissioners.
The latest budget forecasts amount to a huge challenge for council leader John Clancy, who took over last December promising sound finances and delivery of Kerslake in full.
Even if he manages to get spending back on track this year, difficulties are bound to mount over the next three years when significant savings are due to be realised through closer working with the NHS and by changing the terms and conditions of council employees to cut the wage bill, with fewer holidays and reduced sick pay.
Cllr Clancy said the cabinet report highlighted “the incredibly difficult position” the council was in:
While the review may make for uncomfortable reading, I think it’s vital that we tackle these issues head on and take action sooner rather than later. A number of the proposed savings are deemed undeliverable and there is now a much smaller list of new savings proposals, with more work to be done between now and the end of this financial year to identify additional savings.
One certainty is that we have to deliver a balanced budget and each and every member of my cabinet is absolutely committed to ensuring that we do exactly that in these challenging times.
We will continue to work on additional savings and, while we have reserves set aside, we want to minimise use of those reserves because we face another £250 million in Government cuts over the next four years.
The £40m figure is equivalent to a 13 per cent council tax rise, although any inflation-busting increase in bills has been ruled out. Deputy council leader Ian Ward said he shared auditors’ concerns about the budget overspend, but would not be recommending holding a referendum to seek public approval for an above-inflation council tax rise.
While the financial position has eased slightly since June, when a deficit of £68 million was projected, the admission that many of the savings planned for this year cannot be met is bound to set alarm bells ringing. Savings set out in 2015-16 have still not been delivered in full.
A report to the cabinet by strategic finance director Jon Warlow pulls few punches:
The delivery of the 2016+ savings programme was recognised as being extremely challenging. As part of the mid-year review, a pragmatic assessment has been made of the extent to which savings can still be achieved.
It has been concluded that some elements of the programme are not deliverable, in whole or in part, although efforts will continue to be made to maximise the delivery of savings wherever possible.
Despite the actions being put in place, it must be recognised that the risk of a council-wide overspend at year end is substantially higher than in recent years.
Planned savings are proving difficult to find in the high-spending areas of adults and children’s social services, as well as the city’s fleet and waste management division responsible for rubbish collection and disposal.
A £2.1 million gap has opened up between the estimated budget for adult care packages and actual expenditure. The position has increased by £0.556m since month 2 of the budget year as a result of new placements and a net increase in new home support packages.
A sharp jump in the number of people sleeping rough on the streets has pushed up the bill for providing temporary accommodation by £2.8 million.
Delays in developing a new operational model for running community libraries mean that £2.1 million of savings haven’t been achieved.
There are also delays in the decommissioning of the Community Play and Development Service and the programme to redesign and rationalise local assets to deliver services in the future with fewer separate buildings.
Major savings of £4.3 million in waste management services have not been delivered. A project to cut household waste and encourage recycling is running behind schedule as are plans to redesign the street cleaning service and pass on the cost of providing new bins to house builders.
Only half of promised £2.4 million savings on cutting the cost of transporting children to school has been delivered, with hundreds of families winning appeals against attempts to withdraw free bus travel from youngsters with learning difficulties and disabilities.
A move to save £1 million by externalising the management of Alexander Stadium has been sent back to the drawing board after the original plan was deemed undeliverable.
Opposition Conservative and Liberal Democrat group urged the council leader “to get a grip”.
Cllr Robert Alden, leader of the Conservative group, said Cllr Clancy had produced “an undeliverable budget” and was making matters worse by spending £280,000 on consultants to develop savings envisaged by joint council-NHS working.
Cllr Jon Hunt, the Liberal Democrat leader, said:
The extent of the financial crisis means that the city’s large contingency reserve of £60 million could be largely used up within just a single year. It’s not surprising that savings expected from joint working with health are not in the pipeline. The NHS is facing its own crisis. However this represents just £15 million of the expected shortfall.
The failures in management seem to be right across the organisation. For instance waste management services claim that more than £4 million of promised savings cannot be delivered – and indeed claims its costs are rising by £2.6 million.
A £1.25 million projected shortfall in the economy department seems hard to justify. The council keeps promising to reduce its energy bill but appears to be incapable of saving a single penny from this budget.
John Clancy needs to get a grip. It is appalling that the council appears to be abandoning basic savings measures so early in the financial year. If it cannot manage small things – like energy costs –it will gain little sympathy in trying to grapple with the real problems of the crisis in health and social care.
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