Days after an election, council reveals 90% of its savings have disappeared
When voters in the Berkshire town of Slough went to the polls to vote in May’s local elections they did so believing their council’s finances were secure — only to discover shortly afterward that it had effectively run out of money.
In March, councillors approved a balanced budget for the coming year despite Slough, like local authorities across the country, facing an “extremely challenging financial position” due to Covid-19 and years of funding cuts.
Slough should have been struggling more than most. The council’s reserves — money kept aside to meet unforeseen circumstances — were among the lowest in the country and, in its own words, were “barely adequate” to cover its future needs.
Yet Neil Wilcox, the council’s most senior finance officer, was categorical that there was no cause for alarm: the council, he said, had met its legal duty to balance the books because its reserves, which stood at the time as just over £8 million, met the “minimum level” and the council’s financial plans were “robust”.
Only they weren’t. On May 18, less than a fortnight after local elections, it emerged that, due to an accounting error two years earlier, the council’s reserves had been reduced by £7.5m — around 90% — and were all but empty.
Speaking at a council meeting two days later Julie Masci, from auditor Grant Thornton, said the “significant adjustment” to the 2018–19 accounts was the result of an “over-accrual of anticipated profits for one of the council’s commercial entities”.
In other words, an accountant had overestimated the income due to the council from its 50% stake in Slough Urban Renewal, a property partnership with developers Morgan Sindall Investments, and it had taken almost every penny the council had — or thought it had — to correct the mistake.
It is the latest in a series of high profile failings connected to council-owned companies. In Nottingham, council-run Robin Hood Energy failed to turn a profit and was closed down, costing 230 people their jobs. In Croydon the failure of housing company Brick by Brick was a major contributor to council’s Section 114 notice — effectively a declaration of bankruptcy — in response to a £66m budget deficit.
The impact on Slough could be similarly severe. By its own admission the £8.2m reserves held in March (the equivalent of just 3.2% of its net £263m annual budget) was scarcely enough to meet the council’s needs. It now has 90% less, leaving it woefully unprepared, for example, if there is a spike in demand for vital social care services.
Labour’s James Swindlehurst, council leader and cabinet member for finance, told me he first became aware of the problem when he received a call from Mr Wilcox on March 1 asking if he could attend an urgent meeting with Grant Thornton, who had been auditing the 2018–19 accounts, the following day.
During the meeting Cllr Swindlehurst was told that the gross profits generated by Slough Urban Renewal had been included in the accounts rather than the council’s 50% share.
“It was not clear at that point whether the error permeated the whole accounts or only part of them, and therefore the full impact and sum could only be determined by further checks,” he said.
Yet, by his own admission, Cllr Swindlehurst knew at this stage that the error would “likely have significant impacts”. Despite this, a supposedly balanced budget was signed off by Mr Wilcox, then approved by Cllr Swindlehurst and the majority of councillors, at a council meeting less than a week later.
The budget documents contained only a hint of the trouble to come, noting that there “could be some movement” in the level of reserves as a result of ongoing audits.
Consequently, when voters went to the polls to decide a third of all council seats on May 6, they had little to no forewarning of the financial turmoil which would soon emerge. Cllr Swindlehurst insists Grant Thornton’s final report, which was made public on May 14, “could not have been published sooner”.
Conservative group leader Wayne Strutton believes voters were misled and has called for an investigation into whether the council passed an illegal budget.
He said: “I asked this question at full council and at the audit meeting just after the election — does this mean that the budget was not not legitimate?
“They said no because they weren’t fully aware [of the extent of the problem] and it had not been confirmed, so as far as they were aware the figures they were dealing with at the time were correct.
“I don’t understand how they can be that confident because the auditors had already brought this matter to their attention.”
Cllr Strutton added: “I would like to see a full forensic investigation because my suspicion is that more was known about this for longer.
“I’m not comfortable with the answers I’ve been given.
“I fear there will be a drastic cut in services and they will not be made in the right places.”
Cllr Swindlehurst says there is no need for an investigation because the “matter has been corrected by the new finance team and found correct by external auditors”. That team is being led by a new chief finance officer following the resignation of Mr Wilcox. His final day was May 14, four days after the council received the final audit report. Cllr Swindlehurst did not confirm or deny that his departure was connected to the accounting error.
Slough’s financial position could get even worse, with Ms Masci issuing a stark warning during the full council meeting on May 20:
“It’s important to highlight that our audit work for the 2019–20 and 2020–21 financial years have still yet to be conducted, so it’s really important that members recognise the significance of this, in that the undertaking of these additional audits may indeed find further concerns affecting [the council’s] position.”
Cllr Swindlehurst was unable to rule out the prospect of a Section 114 notice, which would ban all but essential spending and have serious implications for council services. Slough would be the third local authority— following Northamptonshire and Croydon — to take such drastic action in the last 20 years.
The council has already applied to the government for special dispensation to borrow in order to support its day-to-day budget. It must now find other ways to rapidly increase its reserves or face, in effect, bankruptcy.
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