The authority’s finance chief has warned it may not be possible to meet the council’s legal obligation to achieve a balanced budget this year.
This worse-case scenario would leave the council with no other option but to issue a section 114 notice, preventing it from entering into any further financial commitments – with the exception of safeguarding vulnerable people and statutory services – until an emergency budget is prepared.
Only one council has had to resort to this extreme measure in the last 20 years, but at least five other authorities have warned they could run out of money this financial year as a direct result of the Covid-19 crisis.
More Covid-19 coverage:
Additional spending in adult social care and loss of income from car parks and Theatre Severn have been identified by finance director James Walton as some of the main challenges for Shropshire Council over the period.
In a report to cabinet members ahead of a meeting next week, he said the authority was facing a shortfall of £18.5 million this financial year – and could have a funding gap of £70 million within five years if drastic measures were not taken or additional income secured.
Putting the cost of the pandemic to the authority at around £36 million, Mr Walton said emergency government grant funding totalling £17.9 million was “not sufficient”.
The council’s 2020/21 financial strategy was approved in February, but Mr Walton said a combination of flooding and the onset of the pandemic rendered the agreed budget “obsolete” before the new financial year began.
The first eight days of lockdown, which fell in the previous financial year, cost the authority £387,000, while the February floods officially cost £460,000 – but Mr Walton said the true figure was more than £1 million.
His report sets out five options for balancing this year’s budget. The first – and most ideal – would be for the government to increase its grant funding to meet the shortfall. Alternatively, the government may consider providing an income guarantee to local authorities, pledging to compensate for any lost income.
Another option on the table is to borrow the money and pay it back over a 25-year period, which would be a burden on the county’s finances in future years.
A spending freeze is also being considered, and would save the council an estimated £4.5 million. The rest would need to come from reserves.
Mr Walton said in his report: “Should the first four options not generate the level of funding required to close the budget gap in 2020/21, it is possible for the council to utilise the financial strategy reserve in 2020/21.
“This reserve has been earmarked for use in 2021/22 in order to temporarily close the structural funding gap, and so by utilising this in 2020/21 instead, this means that the council will have an unsustainable budget for 2021/22.
“If significant additional savings cannot be identified, a section 114 notice may need to be considered by the chief financial officer.”